Dynamic Analysis of a Hyper-Chaotic Financial System with Self-Reinforcing Feedback Loop in...

Day 1 | 8:30 PM–9:00 PM

"Dynamic Analysis of a Hyper-Chaotic Financial System with Self-reinforcing Feedback Loop in Market Sentiment"

Presented by:
Chamalka Hashini Dharmasiri, University of Kelaniya, Dalugama, Kelaniya, Western Province, SRI LANKA

https://qubeshub.org/community/groups...

Abstract: Chaotic systems are nonlinear dynamical systems that are highly sensitive to initial conditions, leading to outcomes that may seem random. Hyperchaotic systems, having at least two positive Lyapunov exponents, are even more unpredictable. In finance, understanding chaotic dynamics is crucial for managing the unpredictability of market behavior. This study extends the 4D chaotic financial system proposed by B. Xin and Zhang (2015), incorporating the concept of a self-reinforcing feedback loop in market sentiment suggested by Soros in 2013. We use five key assumptions to construct the model, namely: (1) market confidence positively influences interest rates, while interest rates negatively affect market confidence; (2) market confidence boosts investment demand, which in turn reinforces confidence; (3) higher price index decreases market confidence, but higher confidence increases the price index; (4) market confidence is influenced by the product of interest rate, investment demand, and price index, with a negative correlation between this product and the rate of change of market confidence; and (5) rising market confidence boosts market performance, reinforcing confidence, while declining confidence leads to further decline. We analyze the dynamical behavior of the proposed system through phase portraits, bifurcation diagrams, waveforms and Lyapunov exponents verifying that the system exhibits hyperchaotic behavior for a range of parameter values.