TITLE:
An Econophysics Model of Financial Bubbles
AUTHORS:
Bodo Herzog
KEYWORDS:
Financial Bubbles, Econophysics, Wave Equation, Financial Crises
JOURNAL NAME:
Natural Science,
Vol.7 No.1,
January
29,
2015
ABSTRACT: Usually financial crises go along with bubbles in asset prices, such as the housing bubble in the US in 2007. This paper attempts to build a mathematical model of financial bubbles from an econophysics, and thus a new perspective. I find that agents identify bubbles only with a time delay. Furthermore, I demonstrate that the detection of bubbles is different on either the individual or collective point of view. Second, I utilize the findings for a new definition of asset bubbles in finance. Finally, I extend the model to the study of asset price dynamics with news. In conclusion, the model provides unique insights into the properties and developments of financial bubbles.