Financial markets' deterministic aspects modeled by a low-dimensional equation

Giuseppe Orlando; Michele Bufalo; Ruedi Stoop

doi:10.1038/s41598-022-05765-z

Financial markets' deterministic aspects modeled by a low-dimensional equation

Sci Rep. 2022 Feb 1;12(1):1693. doi: 10.1038/s41598-022-05765-z.

Authors

Giuseppe Orlando¹, Michele Bufalo², Ruedi Stoop³

Affiliations

¹ Department of Economics and Finance, University of Bari, 70124, Bari, Italy. giuseppe.orlando@uniba.it.
² Department of Methods and Models for Economics, Territory and Finance, University of Rome "La Sapienza", 00185, Rome, Italy.
³ Department of Physics and of Neuroinformatics, University and ETH of Zürich, 8057, Zurich, Switzerland.

Abstract

We ask whether empirical finance market data (Financial Stress Index, swap and equity, emerging and developed, corporate and government, short and long maturity), with their recently observed alternations between calm periods and financial turmoil, could be described by a low-dimensional deterministic model, or whether this requests a stochastic approach. We find that a deterministic model performs at least as well as one of the best stochastic models, but may offer additional insight into the essential mechanisms that drive financial markets.