Bifurcation Routes to Volatility Clustering under Evolutionary Learning

A simple asset pricing model with two types of adaptively learning traders, fundamentalists and technical analysts, is studied. Fractions of these trader types, which are both boundedly rational, change over time according to evolutionary learning, with technical analysts conditioning their forecasting rule upon deviations from a benchmark fundamental. Volatility clustering arises endogenously in this model. Two mechanisms are proposed as an explanation. The first is coexistence of a stable steady state and a stable limit cycle, which arise as a consequence of a so-called Chenciner bifurcation of the system. The second is intermittency and associated bifurcation routes to strange attractors. Both phenomena are persistent and occur generically. Simple economic intuition why these phenomena arise in nonlinear multi-agent evolutionary systems is provided.

Bifurcation Routes to Volatility Clustering under Evolutionary Learning

A simple asset pricing model with two types of boundedly rational traders, fundamentalists and chartists, is studied. Fractions of trader types change over time according to evolutionary learning, with chartists conditioning their forecasting rule upon deviations from a benchmark fundamental. Volatility clustering arises endogenously and two generic mechanisms are proposed as an explanation: (1) coexistence of a stable steady state and a stable limit cycle, due to a so-called Chenciner bifurcation of the system and (2) intermittency and associated bifurcation routes to strange attractors. Economic intuition as to why these phenomena arise in nonlinear multi-agent evolutionary systems is provided

Semi-global analysis of periodic and quasi-periodic k:1 and k:2 resonances

The present paper investigates a family of nonlinear oscillators at Hopf bifurcation, driven by a small quasi-periodic forcing. In particular, we are interested in the situation that at bifurcation and for vanishing forcing strength, the driving frequency and the normal frequency are in k:1 or k:2 resonance. For small but nonvanishing forcing strength, a semi-global normal form system is found by averaging and applying a van der Pol transformation. The bifurcation diagram is organised by a codimension 3 singularity of nilpotent-elliptic type. A fairly complete analysis of local bifurcations is given; moreover, all the nonlocal bifurcation curves predicted by Dumortier et al. (1991) are found numerically.

A nonlinear structural model for volatility clustering

A simple nonlinear structural model of endogenous belief heterogeneity is proposed. News about fundamentals is an IID random process, but nevertheless volatility clustering occurs as an endogenous phenomenon caused by the interaction between different types of traders, fundamentalists and technical analysts. The belief types are driven by adaptive, evolutionary dynamics according to the success of the prediction strategies as measured by accumulated realized profits, conditioned upon price deviations from the rational expectations fundamental price. Asset prices switch irregularly between two different regimes --periods of small price fluctuations and periods of large price changes triggered by random news and reinforced by technical trading -- thus, creating time varying volatility similar to that observed in real financial data.

Numerical bifurcation analysis of homoclinic orbits embedded in one-dimensional manifolds of maps

We describe new methods for initializing the computation of homoclinic orbits for maps in a state space with arbitrary dimension and for detecting their bifurcations. The initialization methods build on known and improved methods for computing one-dimensional stable and unstable manifolds. The methods are implemented in MatContM, a freely available toolbox in Matlab for numerical analysis of bifurcations of fixed points, periodic orbits, and connecting orbits of smooth nonlinear maps. The bifurcation analysis of homoclinic connections under variation of one parameter is based on continuation methods and allows us to detect all known codimension 1 and 2 bifurcations in three-dimensional (3D) maps, including tangencies and generalized tangencies. MatContM provides a graphical user interface, enabling interactive control for all computations. As the prime new feature, we discuss an algorithm for initializing connecting orbits in the important special case where either the stable or unstable manifold is one-dimensional, allowing us to compute all homoclinic orbits to saddle points in 3D maps. We illustrate this algorithm in the study of the adaptive control map, a 3D map introduced in 1991 by Frouzakis, Adomaitis, and Kevrekidis, to obtain a rather complete bifurcation diagram of the resonance horn in a 1:5 Neimark-Sacker bifurcation point, revealing new features

Normal-internal resonances in quasi-periodically forced oscillators: a conservative approach

We perform a bifurcation analysis of normal–internal resonances in parametrised families of quasi–periodically forced Hamiltonian oscillators, for small forcing. The unforced system is a one degree of freedom oscillator, called the ‘backbone’ system; forced, the system is a skew–product flow with a quasi–periodic driving with basic frequencies. The dynamics of the forced system are simplified by averaging over the orbits of a linearisation of the unforced system. The averaged system turns out to have the same structure as in the well–known case of periodic forcing ; for a real analytic system, the non–integrable part can even be made exponentially small in the forcing strength. We investigate the persistence and the bifurcations of quasi–periodic –dimensional tori in the averaged system, filling normal–internal resonance ‘gaps’ that had been excluded in previous analyses. However, these gaps cannot completely be filled up: secondary resonance gaps appear, to which the averaging analysis can be applied again. This phenomenon of ‘gaps within gaps’ makes the quasi–periodic case more complicated than the periodic case