B. Düring, A. Jüngel, L. Trussardi:

"A kinetic equation for economic value estimation with irrationality and herding";

in: "ASC Report 7/2016", Vienna University of Technology, Wien, 2016, ISBN: 978-3-902627-09-4, 1 - 24.

A kinetic inhomogeneous Boltzmann-type equation is proposed to model the dynamics of the number of agents in a large market depending on the estimated value of an asset and the rationality of the agents. The interaction rules take into account the interplay of the agents with sources of public information, herding phenomena, and irrationality of the individuals. In the formal grazing collision limit, a nonlinear nonlocal Fokker-Planck equation with anisotropic (or incomplete) diﬀusion is derived. The exis-tence of global-in-time weak solutions to the Fokker-Planck initial-boundary-value problem is proved. Numerical experiments for the Boltzmann equation highlight the importance of the reliability of public information in the formation of bubbles and crashes. The use of Bollinger bands in the simulations shows how herding may lead to strong trends with low volatility of the asset prices, but eventually also to abrupt corrections.

Inhomogeneous Boltzmann equation, public information, herding, Fokker-Planck equation, existence of solutions, sociophysics.

http://www.asc.tuwien.ac.at/preprint/2016/asc7x2016.pdf

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