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Thermodynamic-like Approach to Complexity of the Financial Market (in the Light of the Present Financial Crises)

  • Andrei Khrennikov
Part of the New Economic Windows book series (NEW)

Abstract

We consider dynamics of financial markets as dynamics of expectations of its agents and discuss such a dynamics from the point of view of phenomenological thermodynamics.We describe a financial thermodynamic-like cycle and the financial analogue of a heat machine. We compare complexity of the financial cycles with complexity of analogous thermodynamic cycles. Our thermodynamic-like model of the financial market induces a rather unusual interpretation of the role of financial crises. In contrast to the common point of view, financial crises play a crucial role in functioning of the modern financial market. A financial cycle could not be completed without such a stage as well as any (physical) thermodynamic cycle. Thus, in spite of its destructive (at the first sight) consequences, the stage of financial crises is as well important as the stage of “boiling of the financial market”. We also discuss a possible decision-making strategy for traders induced by our thermodynamic model. It is, in fact, a decision strategy at the market with an arbitrage possibility for a special group of traders.

Keywords

Stock Market Stochastic Differential Equation Open Market Thermodynamic Cycle Bohmian Mechanic 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag Italia 2010

Authors and Affiliations

  • Andrei Khrennikov
    • 1
  1. 1.International Center for Mathematical Modelling in Physics and Cognitive SciencesVäxjöSweden

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