Critical Analysis of Electronic Simulation of Financial Market Fluctuations

Abstract

An interesting analog circuit for simulating a signal with fluctuations having a probability density function with a power tail has recently been proposed and constructed. The exponent of the power law can be fixed by tuning an appropriate circuit element. The proposal is to use the circuit as a simulator-generator of financial market fluctuations and as a tool for risk estimations and forecasts. We present a discussion of the stability conditions for multiplicative noise and an exhaustive analysis of the power law fluctuation generator in connection with the electronic components and their parameters. From our studies one can conclude that the proposal is not adequate to provide a confident experimental scheme to follow the fluctuations of the financial market due to both electronic implementation and to difficulties in parameter tuning.