Modeling, Simulation and Control of Short-term Stock Market Dynamics

Abstract

Real-world stock markets exhibit periods of increased volatility and bursts in stock prices. This thesis is about creating similar dynamics in a model to gain insight into these potentially dangerous phenomena. A transaction tax able to stabilize the markets is briefly discussed. The relationship between rational and speculative traders is found to be crucial. If the speculative mindsets are allowed to dominate the markets, chaos is inevitable. Simulations show a direct relation between speculation and violent price movements. The discussed transaction tax is found to make the market more robust by targeting the most destabilizing form of trading - short-term speculation.