An agent behavior based model for diffusion price processes with application to phase transition and oscillations

Abstract

We present an agent behavior based microscopic model for diffusion price processes. As such we provide a model not only containing a convenient framework for describing socio-economic behavior, but also a sophisticated link to price dynamics. We furthermore establish the circumstances under which the dynamics converge to diffusion processes in the large market limit. To demonstrate the applicability of a separation of behavior and price process, we show how herding behavior of market participants can lead to equilibria transition and oscillations in diffusion price processes.