Search Swinburne Research Bank
This object has not yet been indexed by the background indexing service.
Please use this identifier to cite or link to this item: http://hdl.handle.net/1959.3/93794
- A note on the theory of fast money flow dynamics
- Sokolov, A.; Kieu, T.; Melatos, A.
- The gauge theory of arbitrage was introduced by Ilinski in [K. Ilinski, preprint arXiv:hep-th/9710148 (1997)] and applied to fast money flows in [A. Ilinskaia, K. Ilinski, preprint arXiv:cond-mat/9902044 (1999); K. Ilinski, Physics of finance: gauge modelling in non-equilibrium pricing (Wiley, 2001)]. The theory of fast money flow dynamics attempts to model the evolution of currency exchange rates and stock prices on short, e.g. intra-day, time scales. It has been used to explain some of the heuristic trading rules, known as technical analysis, that are used by professional traders in the equity and foreign exchange markets. A critique of some of the underlying assumptions of the gauge theory of arbitrage was presented by Sornette in [D. Sornette, Int. J. Mod. Phys. C 9, 505 (1998)]. In this paper, we present a critique of the theory of fast money flow dynamics, which was not examined by Sornette. We demonstrate that the choice of the input parameters used in [K. Ilinski, Physics of finance: gauge modelling in non-equilibrium pricing (Wiley, 2001)] results in sinusoidal oscillations of the exchange rate, in conflict with the results presented in [K. Ilinski, Physics of finance: gauge modelling in non-equilibrium pricing (Wiley, 2001)]. We also find that the dynamics predicted by the theory are generally unstable in most realistic situations, with the exchange rate tending to zero or infinity exponentially.
- Publication type
- Journal article
- Research centre
- Swinburne University of Technology. Faculty of Engineering and Industrial Sciences. Centre for Atom Optics and Ultrafast Spectroscopy
- European Physical Journal B: Condensed Matter and Complex Systems, Vol. 76, no. 4 (Aug 2010), pp. 637-642
- Publication year
- Publisher URL
- Copyright © EDP Sciences, Societa Italiana di Fisica, Springer-Verlag 2010.