Financial models with interacting heterogeneous agents...
Transcript of Financial models with interacting heterogeneous agents...
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Financial models withinteracting heterogeneous agents:
modeling assumptions and mathematical toolsfrom discrete dynamical system theory.
Minicourse for the PhD Program in Methods and Modelsfor Economic Decisions, Insubria University
Marina Pireddu
University of Milano-BicoccaDept. of Mathematics and its Applications
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 1 / 139
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Outline
1 Introduction
2 1D discrete dynamical systems
3 First applications: Heterogeneous Agents Models
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 2 / 139
![Page 3: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/3.jpg)
Introduction
Introduction
Empirical observations of financial market data have highlighted, inaddition to large trading volume, some crucial stylized facts forfinancial time series at the daily frequency:
(i) asset prices follow a near unit root process;
(ii) asset returns are unpredictable with almost no autocorrelations;
(iii) the returns distribution has fat tails;
(iv) financial returns exhibit long-range volatility clustering, i.e., slowdecay of autocorrelations of squared returns and absolute returns.
Although facts (i) and (ii) are consistent with a random walk model witha representative rational agent, that kind of model has difficulty inexplaining fact (iii), (iv) and also high and persistent trading volume.In the past two decades, such limits of the traditional approach gaverise in economics and finance to a paradigm shift towards abehavioral, agent-based approach.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 3 / 139
![Page 4: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/4.jpg)
Introduction
Introduction
Empirical observations of financial market data have highlighted, inaddition to large trading volume, some crucial stylized facts forfinancial time series at the daily frequency:
(i) asset prices follow a near unit root process;
(ii) asset returns are unpredictable with almost no autocorrelations;
(iii) the returns distribution has fat tails;
(iv) financial returns exhibit long-range volatility clustering, i.e., slowdecay of autocorrelations of squared returns and absolute returns.
Although facts (i) and (ii) are consistent with a random walk model witha representative rational agent, that kind of model has difficulty inexplaining fact (iii), (iv) and also high and persistent trading volume.In the past two decades, such limits of the traditional approach gaverise in economics and finance to a paradigm shift towards abehavioral, agent-based approach.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 3 / 139
![Page 5: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/5.jpg)
Introduction
Introduction
Empirical observations of financial market data have highlighted, inaddition to large trading volume, some crucial stylized facts forfinancial time series at the daily frequency:
(i) asset prices follow a near unit root process;
(ii) asset returns are unpredictable with almost no autocorrelations;
(iii) the returns distribution has fat tails;
(iv) financial returns exhibit long-range volatility clustering, i.e., slowdecay of autocorrelations of squared returns and absolute returns.
Although facts (i) and (ii) are consistent with a random walk model witha representative rational agent, that kind of model has difficulty inexplaining fact (iii), (iv) and also high and persistent trading volume.In the past two decades, such limits of the traditional approach gaverise in economics and finance to a paradigm shift towards abehavioral, agent-based approach.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 3 / 139
![Page 6: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/6.jpg)
Introduction
Introduction
Empirical observations of financial market data have highlighted, inaddition to large trading volume, some crucial stylized facts forfinancial time series at the daily frequency:
(i) asset prices follow a near unit root process;
(ii) asset returns are unpredictable with almost no autocorrelations;
(iii) the returns distribution has fat tails;
(iv) financial returns exhibit long-range volatility clustering, i.e., slowdecay of autocorrelations of squared returns and absolute returns.
Although facts (i) and (ii) are consistent with a random walk model witha representative rational agent, that kind of model has difficulty inexplaining fact (iii), (iv) and also high and persistent trading volume.In the past two decades, such limits of the traditional approach gaverise in economics and finance to a paradigm shift towards abehavioral, agent-based approach.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 3 / 139
![Page 7: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/7.jpg)
Introduction
Introduction
Empirical observations of financial market data have highlighted, inaddition to large trading volume, some crucial stylized facts forfinancial time series at the daily frequency:
(i) asset prices follow a near unit root process;
(ii) asset returns are unpredictable with almost no autocorrelations;
(iii) the returns distribution has fat tails;
(iv) financial returns exhibit long-range volatility clustering, i.e., slowdecay of autocorrelations of squared returns and absolute returns.
Although facts (i) and (ii) are consistent with a random walk model witha representative rational agent, that kind of model has difficulty inexplaining fact (iii), (iv) and also high and persistent trading volume.In the past two decades, such limits of the traditional approach gaverise in economics and finance to a paradigm shift towards abehavioral, agent-based approach.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 3 / 139
![Page 8: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/8.jpg)
Introduction
Introduction
Empirical observations of financial market data have highlighted, inaddition to large trading volume, some crucial stylized facts forfinancial time series at the daily frequency:
(i) asset prices follow a near unit root process;
(ii) asset returns are unpredictable with almost no autocorrelations;
(iii) the returns distribution has fat tails;
(iv) financial returns exhibit long-range volatility clustering, i.e., slowdecay of autocorrelations of squared returns and absolute returns.
Although facts (i) and (ii) are consistent with a random walk model witha representative rational agent, that kind of model has difficulty inexplaining fact (iii), (iv) and also high and persistent trading volume.In the past two decades, such limits of the traditional approach gaverise in economics and finance to a paradigm shift towards abehavioral, agent-based approach.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 3 / 139
![Page 9: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/9.jpg)
Introduction
Introduction
Empirical observations of financial market data have highlighted, inaddition to large trading volume, some crucial stylized facts forfinancial time series at the daily frequency:
(i) asset prices follow a near unit root process;
(ii) asset returns are unpredictable with almost no autocorrelations;
(iii) the returns distribution has fat tails;
(iv) financial returns exhibit long-range volatility clustering, i.e., slowdecay of autocorrelations of squared returns and absolute returns.
Although facts (i) and (ii) are consistent with a random walk model witha representative rational agent, that kind of model has difficulty inexplaining fact (iii), (iv) and also high and persistent trading volume.In the past two decades, such limits of the traditional approach gaverise in economics and finance to a paradigm shift towards abehavioral, agent-based approach.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 3 / 139
![Page 10: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/10.jpg)
Introduction
Introduction
Empirical observations of financial market data have highlighted, inaddition to large trading volume, some crucial stylized facts forfinancial time series at the daily frequency:
(i) asset prices follow a near unit root process;
(ii) asset returns are unpredictable with almost no autocorrelations;
(iii) the returns distribution has fat tails;
(iv) financial returns exhibit long-range volatility clustering, i.e., slowdecay of autocorrelations of squared returns and absolute returns.
Although facts (i) and (ii) are consistent with a random walk model witha representative rational agent, that kind of model has difficulty inexplaining fact (iii), (iv) and also high and persistent trading volume.In the past two decades, such limits of the traditional approach gaverise in economics and finance to a paradigm shift towards abehavioral, agent-based approach.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 3 / 139
![Page 11: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/11.jpg)
Introduction
Markets are populated by boundedly rational, heterogeneous agentsusing different heuristics or rule of thumb strategies.In particular, in financial market applications, simple heterogeneousagent models can mimic and explain the above-mentioned stylizedfacts observed in financial time series.Indeed, for instance:
high trading volume is mainly caused by differences in beliefs;
volatility in asset prices is driven by news about economicfundamentals, amplified by the interaction of different tradingstrategies.
Due to the presence of boundedly rational, heterogeneous agents,which progressively learn how to behave on the basis of theirinteraction with the environment and the realized values of the relevantvariables, those models are necessarily dynamic in nature.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 4 / 139
![Page 12: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/12.jpg)
Introduction
Markets are populated by boundedly rational, heterogeneous agentsusing different heuristics or rule of thumb strategies.In particular, in financial market applications, simple heterogeneousagent models can mimic and explain the above-mentioned stylizedfacts observed in financial time series.Indeed, for instance:
high trading volume is mainly caused by differences in beliefs;
volatility in asset prices is driven by news about economicfundamentals, amplified by the interaction of different tradingstrategies.
Due to the presence of boundedly rational, heterogeneous agents,which progressively learn how to behave on the basis of theirinteraction with the environment and the realized values of the relevantvariables, those models are necessarily dynamic in nature.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 4 / 139
![Page 13: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/13.jpg)
Introduction
Markets are populated by boundedly rational, heterogeneous agentsusing different heuristics or rule of thumb strategies.In particular, in financial market applications, simple heterogeneousagent models can mimic and explain the above-mentioned stylizedfacts observed in financial time series.Indeed, for instance:
high trading volume is mainly caused by differences in beliefs;
volatility in asset prices is driven by news about economicfundamentals, amplified by the interaction of different tradingstrategies.
Due to the presence of boundedly rational, heterogeneous agents,which progressively learn how to behave on the basis of theirinteraction with the environment and the realized values of the relevantvariables, those models are necessarily dynamic in nature.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 4 / 139
![Page 14: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/14.jpg)
Introduction
Markets are populated by boundedly rational, heterogeneous agentsusing different heuristics or rule of thumb strategies.In particular, in financial market applications, simple heterogeneousagent models can mimic and explain the above-mentioned stylizedfacts observed in financial time series.Indeed, for instance:
high trading volume is mainly caused by differences in beliefs;
volatility in asset prices is driven by news about economicfundamentals, amplified by the interaction of different tradingstrategies.
Due to the presence of boundedly rational, heterogeneous agents,which progressively learn how to behave on the basis of theirinteraction with the environment and the realized values of the relevantvariables, those models are necessarily dynamic in nature.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 4 / 139
![Page 15: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/15.jpg)
Introduction
Markets are populated by boundedly rational, heterogeneous agentsusing different heuristics or rule of thumb strategies.In particular, in financial market applications, simple heterogeneousagent models can mimic and explain the above-mentioned stylizedfacts observed in financial time series.Indeed, for instance:
high trading volume is mainly caused by differences in beliefs;
volatility in asset prices is driven by news about economicfundamentals, amplified by the interaction of different tradingstrategies.
Due to the presence of boundedly rational, heterogeneous agents,which progressively learn how to behave on the basis of theirinteraction with the environment and the realized values of the relevantvariables, those models are necessarily dynamic in nature.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 4 / 139
![Page 16: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/16.jpg)
Introduction
Markets are indeed viewed as complex adaptive systems, where theevolutionary selection of expectations rules or trading strategies isendogenously coupled with the market dynamics.
Being usually highly nonlinear, for instance due to evolutionaryswitching between strategies, the heterogeneous agent models exhibita wide range of dynamical behaviors.
We will then introduce some basic mathematical tools from discretedynamical system theory, which will be applied to analyze simple (1Dand 2D) heterogeneous agent models, like those proposed inWesterhoff (2012) and in Naimzada and Pireddu (2014, 2015a,2015b).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 5 / 139
![Page 17: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/17.jpg)
Introduction
Markets are indeed viewed as complex adaptive systems, where theevolutionary selection of expectations rules or trading strategies isendogenously coupled with the market dynamics.
Being usually highly nonlinear, for instance due to evolutionaryswitching between strategies, the heterogeneous agent models exhibita wide range of dynamical behaviors.
We will then introduce some basic mathematical tools from discretedynamical system theory, which will be applied to analyze simple (1Dand 2D) heterogeneous agent models, like those proposed inWesterhoff (2012) and in Naimzada and Pireddu (2014, 2015a,2015b).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 5 / 139
![Page 18: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/18.jpg)
Introduction
Markets are indeed viewed as complex adaptive systems, where theevolutionary selection of expectations rules or trading strategies isendogenously coupled with the market dynamics.
Being usually highly nonlinear, for instance due to evolutionaryswitching between strategies, the heterogeneous agent models exhibita wide range of dynamical behaviors.
We will then introduce some basic mathematical tools from discretedynamical system theory, which will be applied to analyze simple (1Dand 2D) heterogeneous agent models, like those proposed inWesterhoff (2012) and in Naimzada and Pireddu (2014, 2015a,2015b).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 5 / 139
![Page 19: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/19.jpg)
Introduction
References on heterogeneous agent models:
– De Grauwe P (2012) Lectures on Behavioral Macroeconomics.Princeton University Press, New Jersey.– Hommes CH (2006) Heterogeneous Agent Models in Economicsand Finance. In: L. Tesfatsion and K.L. Judd (Eds.), Agent-BasedComputational Economics, pp. 1109–1186. Handbook ofComputational Economics, vol.2. Elsevier Science, Amsterdam.Sections 1 and 6– Hommes CH (2013) Behavioral Rationality and HeterogeneousExpectations in Complex Economic Systems. Cambridge UniversityPress, Cambridge.– Naimzada A, Pireddu M (2014) Dynamic behavior of product andstock markets with a varying degree of interaction. EconomicModelling 41, 191–197
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 6 / 139
![Page 20: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/20.jpg)
Introduction
– Naimzada A, Pireddu M (2015a) Introducing a price variation limitermechanism into a behavioral financial market model. Chaos 25,083112. doi: 10.1063/1.4927831– Naimzada A, Pireddu M (2015b) Real and financial interactingmarkets: A behavioral macro-model. Chaos Solitons Fractals 77,111–131– Westerhoff F (2012) Interactions between the real economy and thestock market: A simple agent-based approach, Discrete Dynamics inNature and Society 2012, Article ID 504840
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 7 / 139
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1D discrete dynamical systems
Classification of 1D discrete dynamical systems
A 1D discrete dynamical system is a sequence of numbers, xt , that aredefined recursively, i.e., there is a rule relating each number in thesequence to (some or all) the previous numbers in the sequence; wedenote such a sequence by {xt}.Time is discrete, i.e., t = 0,1,2, . . .
A first-order discrete dynamical system is a sequence of numbers xt fort = 0,1,2, . . . such that each number after the first is related just to theprevious number by the relationship xt+1 = f (xt ), where f : A ⊆ R→ R.
An mth-order discrete dynamical system takes the formxt+m = f (xt+m−1, xt+m−2, . . . , xt ), for some m ∈ N \ {0}.Since the systems above do not explicitly depend on t , they are calledautonomous.
We will consider only the case m = 1, i.e., first-order autonomousdiscrete dynamical systems.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 8 / 139
![Page 22: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/22.jpg)
1D discrete dynamical systems
Classification of 1D discrete dynamical systems
A 1D discrete dynamical system is a sequence of numbers, xt , that aredefined recursively, i.e., there is a rule relating each number in thesequence to (some or all) the previous numbers in the sequence; wedenote such a sequence by {xt}.Time is discrete, i.e., t = 0,1,2, . . .
A first-order discrete dynamical system is a sequence of numbers xt fort = 0,1,2, . . . such that each number after the first is related just to theprevious number by the relationship xt+1 = f (xt ), where f : A ⊆ R→ R.
An mth-order discrete dynamical system takes the formxt+m = f (xt+m−1, xt+m−2, . . . , xt ), for some m ∈ N \ {0}.Since the systems above do not explicitly depend on t , they are calledautonomous.
We will consider only the case m = 1, i.e., first-order autonomousdiscrete dynamical systems.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 8 / 139
![Page 23: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/23.jpg)
1D discrete dynamical systems
Classification of 1D discrete dynamical systems
A 1D discrete dynamical system is a sequence of numbers, xt , that aredefined recursively, i.e., there is a rule relating each number in thesequence to (some or all) the previous numbers in the sequence; wedenote such a sequence by {xt}.Time is discrete, i.e., t = 0,1,2, . . .
A first-order discrete dynamical system is a sequence of numbers xt fort = 0,1,2, . . . such that each number after the first is related just to theprevious number by the relationship xt+1 = f (xt ), where f : A ⊆ R→ R.
An mth-order discrete dynamical system takes the formxt+m = f (xt+m−1, xt+m−2, . . . , xt ), for some m ∈ N \ {0}.Since the systems above do not explicitly depend on t , they are calledautonomous.
We will consider only the case m = 1, i.e., first-order autonomousdiscrete dynamical systems.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 8 / 139
![Page 24: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/24.jpg)
1D discrete dynamical systems
Classification of 1D discrete dynamical systems
A 1D discrete dynamical system is a sequence of numbers, xt , that aredefined recursively, i.e., there is a rule relating each number in thesequence to (some or all) the previous numbers in the sequence; wedenote such a sequence by {xt}.Time is discrete, i.e., t = 0,1,2, . . .
A first-order discrete dynamical system is a sequence of numbers xt fort = 0,1,2, . . . such that each number after the first is related just to theprevious number by the relationship xt+1 = f (xt ), where f : A ⊆ R→ R.
An mth-order discrete dynamical system takes the formxt+m = f (xt+m−1, xt+m−2, . . . , xt ), for some m ∈ N \ {0}.Since the systems above do not explicitly depend on t , they are calledautonomous.
We will consider only the case m = 1, i.e., first-order autonomousdiscrete dynamical systems.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 8 / 139
![Page 25: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/25.jpg)
1D discrete dynamical systems
Classification of 1D discrete dynamical systems
A 1D discrete dynamical system is a sequence of numbers, xt , that aredefined recursively, i.e., there is a rule relating each number in thesequence to (some or all) the previous numbers in the sequence; wedenote such a sequence by {xt}.Time is discrete, i.e., t = 0,1,2, . . .
A first-order discrete dynamical system is a sequence of numbers xt fort = 0,1,2, . . . such that each number after the first is related just to theprevious number by the relationship xt+1 = f (xt ), where f : A ⊆ R→ R.
An mth-order discrete dynamical system takes the formxt+m = f (xt+m−1, xt+m−2, . . . , xt ), for some m ∈ N \ {0}.Since the systems above do not explicitly depend on t , they are calledautonomous.
We will consider only the case m = 1, i.e., first-order autonomousdiscrete dynamical systems.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 8 / 139
![Page 26: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/26.jpg)
1D discrete dynamical systems
Classification of 1D discrete dynamical systems
A 1D discrete dynamical system is a sequence of numbers, xt , that aredefined recursively, i.e., there is a rule relating each number in thesequence to (some or all) the previous numbers in the sequence; wedenote such a sequence by {xt}.Time is discrete, i.e., t = 0,1,2, . . .
A first-order discrete dynamical system is a sequence of numbers xt fort = 0,1,2, . . . such that each number after the first is related just to theprevious number by the relationship xt+1 = f (xt ), where f : A ⊆ R→ R.
An mth-order discrete dynamical system takes the formxt+m = f (xt+m−1, xt+m−2, . . . , xt ), for some m ∈ N \ {0}.Since the systems above do not explicitly depend on t , they are calledautonomous.
We will consider only the case m = 1, i.e., first-order autonomousdiscrete dynamical systems.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 8 / 139
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1D discrete dynamical systems
Classification of 1D discrete dynamical systems
A 1D discrete dynamical system is a sequence of numbers, xt , that aredefined recursively, i.e., there is a rule relating each number in thesequence to (some or all) the previous numbers in the sequence; wedenote such a sequence by {xt}.Time is discrete, i.e., t = 0,1,2, . . .
A first-order discrete dynamical system is a sequence of numbers xt fort = 0,1,2, . . . such that each number after the first is related just to theprevious number by the relationship xt+1 = f (xt ), where f : A ⊆ R→ R.
An mth-order discrete dynamical system takes the formxt+m = f (xt+m−1, xt+m−2, . . . , xt ), for some m ∈ N \ {0}.Since the systems above do not explicitly depend on t , they are calledautonomous.
We will consider only the case m = 1, i.e., first-order autonomousdiscrete dynamical systems.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 8 / 139
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1D discrete dynamical systems
If f is linear, i.e., f (xt ) = axt + b, for some a,b ∈ R, the system is saidto be linear; if f is nonlinear, i.e., if f is not linear, then the system issaid to be nonlinear.
Examples:
(i) xt+1 =√
2− πxt is linear
(ii) xt+1 = 1.27 xt (1− xt ) is nonlinear
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 9 / 139
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1D discrete dynamical systems
If f is linear, i.e., f (xt ) = axt + b, for some a,b ∈ R, the system is saidto be linear; if f is nonlinear, i.e., if f is not linear, then the system issaid to be nonlinear.
Examples:
(i) xt+1 =√
2− πxt is linear
(ii) xt+1 = 1.27 xt (1− xt ) is nonlinear
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 9 / 139
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1D discrete dynamical systems
If f is linear, i.e., f (xt ) = axt + b, for some a,b ∈ R, the system is saidto be linear; if f is nonlinear, i.e., if f is not linear, then the system issaid to be nonlinear.
Examples:
(i) xt+1 =√
2− πxt is linear
(ii) xt+1 = 1.27 xt (1− xt ) is nonlinear
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 9 / 139
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1D discrete dynamical systems
If f is linear, i.e., f (xt ) = axt + b, for some a,b ∈ R, the system is saidto be linear; if f is nonlinear, i.e., if f is not linear, then the system issaid to be nonlinear.
Examples:
(i) xt+1 =√
2− πxt is linear
(ii) xt+1 = 1.27 xt (1− xt ) is nonlinear
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 9 / 139
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1D discrete dynamical systems
The initial value problem and orbits
To start the system xt+1 = f (xt ), we need to specify the initial conditionx0 ∈ R.
Then O(x0) = {x0, f (x0), f (f (x0)), f (f (f (x0))), . . . } ={x0, f (x0), f 2(x0), f 3(x0), . . . } is the (positive) orbit of x0.
Solving the system xt+1 = f (xt ) with initial condition x0 ∈ R meansfinding a sequence {yt , t ∈ N} such that yt+1 = f (yt ), for all t ∈ N, andy0 = x0.
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1D discrete dynamical systems
The initial value problem and orbits
To start the system xt+1 = f (xt ), we need to specify the initial conditionx0 ∈ R.
Then O(x0) = {x0, f (x0), f (f (x0)), f (f (f (x0))), . . . } ={x0, f (x0), f 2(x0), f 3(x0), . . . } is the (positive) orbit of x0.
Solving the system xt+1 = f (xt ) with initial condition x0 ∈ R meansfinding a sequence {yt , t ∈ N} such that yt+1 = f (yt ), for all t ∈ N, andy0 = x0.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 10 / 139
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1D discrete dynamical systems
The initial value problem and orbits
To start the system xt+1 = f (xt ), we need to specify the initial conditionx0 ∈ R.
Then O(x0) = {x0, f (x0), f (f (x0)), f (f (f (x0))), . . . } ={x0, f (x0), f 2(x0), f 3(x0), . . . } is the (positive) orbit of x0.
Solving the system xt+1 = f (xt ) with initial condition x0 ∈ R meansfinding a sequence {yt , t ∈ N} such that yt+1 = f (yt ), for all t ∈ N, andy0 = x0.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 10 / 139
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1D discrete dynamical systems
The initial value problem and orbits
To start the system xt+1 = f (xt ), we need to specify the initial conditionx0 ∈ R.
Then O(x0) = {x0, f (x0), f (f (x0)), f (f (f (x0))), . . . } ={x0, f (x0), f 2(x0), f 3(x0), . . . } is the (positive) orbit of x0.
Solving the system xt+1 = f (xt ) with initial condition x0 ∈ R meansfinding a sequence {yt , t ∈ N} such that yt+1 = f (yt ), for all t ∈ N, andy0 = x0.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 10 / 139
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1D discrete dynamical systems
Equilibria and stability of 1D dynamical systems
If xt+1 = f (xt ) is a 1D discrete dynamical system, then x∗ is a fixedpoint or equilibrium point of the system ifx∗ = f (x∗)⇒ xt = x∗,∀t ∈ N⇒ O(x∗) = {x∗}.
The fixed points are found as the intersections between the graph of fand the 45-degree line xt+1 = xt .
Example: the logistic equation
xt+1 = µxt (1− xt ), µ > 0.
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1D discrete dynamical systems
Equilibria and stability of 1D dynamical systems
If xt+1 = f (xt ) is a 1D discrete dynamical system, then x∗ is a fixedpoint or equilibrium point of the system ifx∗ = f (x∗)⇒ xt = x∗,∀t ∈ N⇒ O(x∗) = {x∗}.
The fixed points are found as the intersections between the graph of fand the 45-degree line xt+1 = xt .
Example: the logistic equation
xt+1 = µxt (1− xt ), µ > 0.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 11 / 139
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1D discrete dynamical systems
Equilibria and stability of 1D dynamical systems
If xt+1 = f (xt ) is a 1D discrete dynamical system, then x∗ is a fixedpoint or equilibrium point of the system ifx∗ = f (x∗)⇒ xt = x∗,∀t ∈ N⇒ O(x∗) = {x∗}.
The fixed points are found as the intersections between the graph of fand the 45-degree line xt+1 = xt .
Example: the logistic equation
xt+1 = µxt (1− xt ), µ > 0.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 11 / 139
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1D discrete dynamical systems
Equilibria and stability of 1D dynamical systems
If xt+1 = f (xt ) is a 1D discrete dynamical system, then x∗ is a fixedpoint or equilibrium point of the system ifx∗ = f (x∗)⇒ xt = x∗,∀t ∈ N⇒ O(x∗) = {x∗}.
The fixed points are found as the intersections between the graph of fand the 45-degree line xt+1 = xt .
Example: the logistic equation
xt+1 = µxt (1− xt ), µ > 0.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 11 / 139
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1D discrete dynamical systems
Equilibria and stability of 1D dynamical systems
If xt+1 = f (xt ) is a 1D discrete dynamical system, then x∗ is a fixedpoint or equilibrium point of the system ifx∗ = f (x∗)⇒ xt = x∗,∀t ∈ N⇒ O(x∗) = {x∗}.
The fixed points are found as the intersections between the graph of fand the 45-degree line xt+1 = xt .
Example: the logistic equation
xt+1 = µxt (1− xt ), µ > 0.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 11 / 139
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1D discrete dynamical systems
Consider f (xt ) = µxt (1− xt ), with f : [0,1]→ R
µ = 3.5
The fixed points are x∗ = 0 and x∗ = 1− 1µ ∈ (0,1) for µ > 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 12 / 139
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1D discrete dynamical systems
Consider f (xt ) = µxt (1− xt ), with f : [0,1]→ R
µ = 3.5
The fixed points are x∗ = 0 and x∗ = 1− 1µ ∈ (0,1) for µ > 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 12 / 139
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1D discrete dynamical systems
Consider f (xt ) = µxt (1− xt ), with f : [0,1]→ R
µ = 3.5
The fixed points are x∗ = 0 and x∗ = 1− 1µ ∈ (0,1) for µ > 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 12 / 139
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1D discrete dynamical systems
In the case of linear discrete dynamical systems xt+1 = axt + b, forsome a,b ∈ R, there exists a unique (acceptable?) equilibriumx∗ = b
1−a , for a 6= 1.
a = 0.3, b = −1
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1D discrete dynamical systems
Definition of stability/instability
Given xt+1 = f (xt ), with f : I ⊂ R→ R defined on the interval I, theequilibrium point x∗ ∈ I is stable if ∀ε > 0 ∃δ > 0 such that ∀x0 ∈ I with|x0 − x∗| < δ it holds that |f t (x0)− x∗| < ε, ∀t ∈ N \ {0}.
x∗ is stable
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1D discrete dynamical systems
If x∗ is not stable then it is called unstable.
x∗ is unstable
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1D discrete dynamical systems
x∗ is unstable
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1D discrete dynamical systems
If x∗ is stable and attracting, i.e., there exists η > 0 such that for allx0 ∈ I with |x0 − x∗| < η it holds that limt→+∞ f t (x0) = x∗, for t ∈ N,then x∗ is called locally asymptotically stable.
x∗ is locally asymptotically stable
If η = +∞, then x∗ is called globally asymptotically stable.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 17 / 139
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1D discrete dynamical systems
If x∗ is stable and attracting, i.e., there exists η > 0 such that for allx0 ∈ I with |x0 − x∗| < η it holds that limt→+∞ f t (x0) = x∗, for t ∈ N,then x∗ is called locally asymptotically stable.
x∗ is locally asymptotically stable
If η = +∞, then x∗ is called globally asymptotically stable.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 17 / 139
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1D discrete dynamical systems
How do we check local stability?
1) Graphical method: the cobweb (or stair-step) diagram
Monotone convergence to the equilibrium x∗ ∈ (0,1)⇒ it isasymptotically stable.
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1D discrete dynamical systems
How do we check local stability?
1) Graphical method: the cobweb (or stair-step) diagram
Monotone convergence to the equilibrium x∗ ∈ (0,1)⇒ it isasymptotically stable.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 18 / 139
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1D discrete dynamical systems
Non-monotone convergence to the equilibrium x∗ ∈ (0,1)⇒ it is stillasymptotically stable.
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1D discrete dynamical systems
Convergence to a period-two cycle⇒ x∗ ∈ (0,1) is unstable.
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1D discrete dynamical systems
Convergence to a chaotic attractor⇒ x∗ ∈ (0,1) is unstable.
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1D discrete dynamical systems
2) Analytical method:
TheoremLet x∗ be an equilibrium point of the dynamical system xt+1 = f (xt ),with f continuously differentiable at x∗.
(i) If |f ′(x∗)| < 1, then x∗ is locally asymptotically stable;(ii) if |f ′(x∗)| > 1, then x∗ is unstable;(iii) if |f ′(x∗)| = 1, you need higher derivatives to establish the nature
of x∗.
We will focus on hyperbolic equilibrium points x∗, i.e., with |f ′(x∗)| 6= 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 22 / 139
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1D discrete dynamical systems
2) Analytical method:
TheoremLet x∗ be an equilibrium point of the dynamical system xt+1 = f (xt ),with f continuously differentiable at x∗.
(i) If |f ′(x∗)| < 1, then x∗ is locally asymptotically stable;(ii) if |f ′(x∗)| > 1, then x∗ is unstable;(iii) if |f ′(x∗)| = 1, you need higher derivatives to establish the nature
of x∗.
We will focus on hyperbolic equilibrium points x∗, i.e., with |f ′(x∗)| 6= 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 22 / 139
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1D discrete dynamical systems
2) Analytical method:
TheoremLet x∗ be an equilibrium point of the dynamical system xt+1 = f (xt ),with f continuously differentiable at x∗.
(i) If |f ′(x∗)| < 1, then x∗ is locally asymptotically stable;(ii) if |f ′(x∗)| > 1, then x∗ is unstable;(iii) if |f ′(x∗)| = 1, you need higher derivatives to establish the nature
of x∗.
We will focus on hyperbolic equilibrium points x∗, i.e., with |f ′(x∗)| 6= 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 22 / 139
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1D discrete dynamical systems
2) Analytical method:
TheoremLet x∗ be an equilibrium point of the dynamical system xt+1 = f (xt ),with f continuously differentiable at x∗.
(i) If |f ′(x∗)| < 1, then x∗ is locally asymptotically stable;(ii) if |f ′(x∗)| > 1, then x∗ is unstable;(iii) if |f ′(x∗)| = 1, you need higher derivatives to establish the nature
of x∗.
We will focus on hyperbolic equilibrium points x∗, i.e., with |f ′(x∗)| 6= 1.
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1D discrete dynamical systems
Example:Considering again the logistic equation
xt+1 = µxt (1− xt ), µ > 0
and the associated map f (xt ) = µxt (1− xt ), with f : [0,1]→ R, we have
f ′(xt ) = µ(1− 2xt )⇒
f ′(0) = µ and thus x∗ = 0 is asymptotically stable for µ < 1 andunstable for µ > 1;
f ′(1− 1µ) = 2− µ ∈ (−1,1) for µ ∈ (1,3) and thus x∗ = 1− 1
µ isasymptotically stable for µ ∈ (1,3) and unstable for µ ∈ (3,+∞).
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1D discrete dynamical systems
Example:Considering again the logistic equation
xt+1 = µxt (1− xt ), µ > 0
and the associated map f (xt ) = µxt (1− xt ), with f : [0,1]→ R, we have
f ′(xt ) = µ(1− 2xt )⇒
f ′(0) = µ and thus x∗ = 0 is asymptotically stable for µ < 1 andunstable for µ > 1;
f ′(1− 1µ) = 2− µ ∈ (−1,1) for µ ∈ (1,3) and thus x∗ = 1− 1
µ isasymptotically stable for µ ∈ (1,3) and unstable for µ ∈ (3,+∞).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 23 / 139
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1D discrete dynamical systems
Example:Considering again the logistic equation
xt+1 = µxt (1− xt ), µ > 0
and the associated map f (xt ) = µxt (1− xt ), with f : [0,1]→ R, we have
f ′(xt ) = µ(1− 2xt )⇒
f ′(0) = µ and thus x∗ = 0 is asymptotically stable for µ < 1 andunstable for µ > 1;
f ′(1− 1µ) = 2− µ ∈ (−1,1) for µ ∈ (1,3) and thus x∗ = 1− 1
µ isasymptotically stable for µ ∈ (1,3) and unstable for µ ∈ (3,+∞).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 23 / 139
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1D discrete dynamical systems
µ = 0.7
(Monotone) convergence to the equilibrium x∗ = 0⇒ it isasymptotically stable.
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1D discrete dynamical systems
µ = 2
(Monotone) convergence to the equilibrium x∗ = 1− 1µ = 0.5⇒ it is
asymptotically stable.
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1D discrete dynamical systems
µ = 2.8
(Non-monotone) convergence to the equilibrium x∗ = 1− 1µ ≈ 0.64⇒
it is still asymptotically stable.
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1D discrete dynamical systems
µ = 3.25
Convergence to a period-two cycle⇒ x∗ = 1− 1µ ≈ 0.69 is unstable.
The two-cycle framework is readily revealed by the fact that the systemcycles around a rectangle.
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1D discrete dynamical systems
µ = 3.25
Convergence to a period-two cycle⇒ x∗ = 1− 1µ ≈ 0.69 is unstable.
The two-cycle framework is readily revealed by the fact that the systemcycles around a rectangle.
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1D discrete dynamical systems
µ = 3.8
Convergence to a chaotic attractor⇒ x∗ = 1− 1µ ≈ 0.74 is unstable.
What precisely happens when x∗ = 1− 1µ becomes unstable (for
µ > 3)?
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1D discrete dynamical systems
µ = 3.8
Convergence to a chaotic attractor⇒ x∗ = 1− 1µ ≈ 0.74 is unstable.
What precisely happens when x∗ = 1− 1µ becomes unstable (for
µ > 3)?
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 28 / 139
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1D discrete dynamical systems
Solving linear equations
General form: xt+1 = axt + b, with a, b ∈ R, a 6= 0.
– First case: b = 0 (homogeneous equation)
⇒ xt+1 = axt , with initial condition x0 ∈ R.
We have x1 = ax0, x2 = ax1 = a(ax0) = a2x0, . . . ,xt = axt−1 = a(at−1x0) = atx0.
The unique equilibrium is given by x∗ = 0 and it is globallyasymptotically stable for |a| < 1, and unstable for |a| > 1.
For a = 1 we have xt+1 = xt , with initial condition x0 ∈ R. The solutionis given by xt = x0, ∀t ∈ N.
For a = −1 we have xt+1 = −xt , with initial condition x0 ∈ R. Thesolution is given by xt = (−1)tx0, ∀t ∈ N.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 29 / 139
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1D discrete dynamical systems
Solving linear equations
General form: xt+1 = axt + b, with a, b ∈ R, a 6= 0.
– First case: b = 0 (homogeneous equation)
⇒ xt+1 = axt , with initial condition x0 ∈ R.
We have x1 = ax0, x2 = ax1 = a(ax0) = a2x0, . . . ,xt = axt−1 = a(at−1x0) = atx0.
The unique equilibrium is given by x∗ = 0 and it is globallyasymptotically stable for |a| < 1, and unstable for |a| > 1.
For a = 1 we have xt+1 = xt , with initial condition x0 ∈ R. The solutionis given by xt = x0, ∀t ∈ N.
For a = −1 we have xt+1 = −xt , with initial condition x0 ∈ R. Thesolution is given by xt = (−1)tx0, ∀t ∈ N.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 29 / 139
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1D discrete dynamical systems
Solving linear equations
General form: xt+1 = axt + b, with a, b ∈ R, a 6= 0.
– First case: b = 0 (homogeneous equation)
⇒ xt+1 = axt , with initial condition x0 ∈ R.
We have x1 = ax0, x2 = ax1 = a(ax0) = a2x0, . . . ,xt = axt−1 = a(at−1x0) = atx0.
The unique equilibrium is given by x∗ = 0 and it is globallyasymptotically stable for |a| < 1, and unstable for |a| > 1.
For a = 1 we have xt+1 = xt , with initial condition x0 ∈ R. The solutionis given by xt = x0, ∀t ∈ N.
For a = −1 we have xt+1 = −xt , with initial condition x0 ∈ R. Thesolution is given by xt = (−1)tx0, ∀t ∈ N.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 29 / 139
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1D discrete dynamical systems
Solving linear equations
General form: xt+1 = axt + b, with a, b ∈ R, a 6= 0.
– First case: b = 0 (homogeneous equation)
⇒ xt+1 = axt , with initial condition x0 ∈ R.
We have x1 = ax0, x2 = ax1 = a(ax0) = a2x0, . . . ,xt = axt−1 = a(at−1x0) = atx0.
The unique equilibrium is given by x∗ = 0 and it is globallyasymptotically stable for |a| < 1, and unstable for |a| > 1.
For a = 1 we have xt+1 = xt , with initial condition x0 ∈ R. The solutionis given by xt = x0, ∀t ∈ N.
For a = −1 we have xt+1 = −xt , with initial condition x0 ∈ R. Thesolution is given by xt = (−1)tx0, ∀t ∈ N.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 29 / 139
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1D discrete dynamical systems
Solving linear equations
General form: xt+1 = axt + b, with a, b ∈ R, a 6= 0.
– First case: b = 0 (homogeneous equation)
⇒ xt+1 = axt , with initial condition x0 ∈ R.
We have x1 = ax0, x2 = ax1 = a(ax0) = a2x0, . . . ,xt = axt−1 = a(at−1x0) = atx0.
The unique equilibrium is given by x∗ = 0 and it is globallyasymptotically stable for |a| < 1, and unstable for |a| > 1.
For a = 1 we have xt+1 = xt , with initial condition x0 ∈ R. The solutionis given by xt = x0, ∀t ∈ N.
For a = −1 we have xt+1 = −xt , with initial condition x0 ∈ R. Thesolution is given by xt = (−1)tx0, ∀t ∈ N.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 29 / 139
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1D discrete dynamical systems
Solving linear equations
General form: xt+1 = axt + b, with a, b ∈ R, a 6= 0.
– First case: b = 0 (homogeneous equation)
⇒ xt+1 = axt , with initial condition x0 ∈ R.
We have x1 = ax0, x2 = ax1 = a(ax0) = a2x0, . . . ,xt = axt−1 = a(at−1x0) = atx0.
The unique equilibrium is given by x∗ = 0 and it is globallyasymptotically stable for |a| < 1, and unstable for |a| > 1.
For a = 1 we have xt+1 = xt , with initial condition x0 ∈ R. The solutionis given by xt = x0, ∀t ∈ N.
For a = −1 we have xt+1 = −xt , with initial condition x0 ∈ R. Thesolution is given by xt = (−1)tx0, ∀t ∈ N.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 29 / 139
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1D discrete dynamical systems
Solving linear equations
General form: xt+1 = axt + b, with a, b ∈ R, a 6= 0.
– First case: b = 0 (homogeneous equation)
⇒ xt+1 = axt , with initial condition x0 ∈ R.
We have x1 = ax0, x2 = ax1 = a(ax0) = a2x0, . . . ,xt = axt−1 = a(at−1x0) = atx0.
The unique equilibrium is given by x∗ = 0 and it is globallyasymptotically stable for |a| < 1, and unstable for |a| > 1.
For a = 1 we have xt+1 = xt , with initial condition x0 ∈ R. The solutionis given by xt = x0, ∀t ∈ N.
For a = −1 we have xt+1 = −xt , with initial condition x0 ∈ R. Thesolution is given by xt = (−1)tx0, ∀t ∈ N.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 29 / 139
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1D discrete dynamical systems
Solving linear equations
General form: xt+1 = axt + b, with a, b ∈ R, a 6= 0.
– First case: b = 0 (homogeneous equation)
⇒ xt+1 = axt , with initial condition x0 ∈ R.
We have x1 = ax0, x2 = ax1 = a(ax0) = a2x0, . . . ,xt = axt−1 = a(at−1x0) = atx0.
The unique equilibrium is given by x∗ = 0 and it is globallyasymptotically stable for |a| < 1, and unstable for |a| > 1.
For a = 1 we have xt+1 = xt , with initial condition x0 ∈ R. The solutionis given by xt = x0, ∀t ∈ N.
For a = −1 we have xt+1 = −xt , with initial condition x0 ∈ R. Thesolution is given by xt = (−1)tx0, ∀t ∈ N.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 29 / 139
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1D discrete dynamical systems
(A) (B)Time series in (A) and stair-step diagram in (B) with a = 1.2, x0 = 10
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1D discrete dynamical systems
(A) (B)Time series in (A) and stair-step diagram in (B) with a = 0.75, x0 = 10
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1D discrete dynamical systems
(A) (B)Time series in (A) and stair-step diagram in (B) with
a = −0.75, x0 = 10
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1D discrete dynamical systems
(A) (B)Time series in (A) and stair-step diagram in (B) with a = −1.2, x0 = 10
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1D discrete dynamical systems
Example: the Malthusian population growth model (discrete version)
We denote by pt > 0 the size of the population p at time t ∈ N.
Assuming a constant population growth rate pt+1−ptpt
= K > −1⇒pt+1 = (K + 1)pt .
The solution is given by pt = (K + 1)tp0, with p0 > 0.
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1D discrete dynamical systems
Example: the Malthusian population growth model (discrete version)
We denote by pt > 0 the size of the population p at time t ∈ N.
Assuming a constant population growth rate pt+1−ptpt
= K > −1⇒pt+1 = (K + 1)pt .
The solution is given by pt = (K + 1)tp0, with p0 > 0.
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1D discrete dynamical systems
Example: the Malthusian population growth model (discrete version)
We denote by pt > 0 the size of the population p at time t ∈ N.
Assuming a constant population growth rate pt+1−ptpt
= K > −1⇒pt+1 = (K + 1)pt .
The solution is given by pt = (K + 1)tp0, with p0 > 0.
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1D discrete dynamical systems
Example: the Malthusian population growth model (discrete version)
We denote by pt > 0 the size of the population p at time t ∈ N.
Assuming a constant population growth rate pt+1−ptpt
= K > −1⇒pt+1 = (K + 1)pt .
The solution is given by pt = (K + 1)tp0, with p0 > 0.
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1D discrete dynamical systems
For K ∈ (−1,0), x∗ = 0 is globally asymptotically stable (exponentialdecay).
K = −0.5, p0 = 7.5
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1D discrete dynamical systems
For K > 0, x∗ = 0 is unstable (exponential growth).
K = 0.5, p0 = 0.35
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1D discrete dynamical systems
– Second case: b 6= 0 (nonhomogeneous equation)
⇒ xt+1 = axt + b, with a, b ∈ R \ {0}.
• Subcase I: a = 1
⇒ xt+1 = xt + b, with b ∈ R \ {0}, and initial condition x0 ∈ R.
We have x1 = x0 + b, x2 = x1 + b = (x0 + b) + b = x0 + 2b, . . . ,xt = xt−1 + b = (x0 + (t − 1)b) + b = x0 + tb.
In this case there are no equilibria.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 37 / 139
![Page 88: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/88.jpg)
1D discrete dynamical systems
– Second case: b 6= 0 (nonhomogeneous equation)
⇒ xt+1 = axt + b, with a, b ∈ R \ {0}.
• Subcase I: a = 1
⇒ xt+1 = xt + b, with b ∈ R \ {0}, and initial condition x0 ∈ R.
We have x1 = x0 + b, x2 = x1 + b = (x0 + b) + b = x0 + 2b, . . . ,xt = xt−1 + b = (x0 + (t − 1)b) + b = x0 + tb.
In this case there are no equilibria.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 37 / 139
![Page 89: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/89.jpg)
1D discrete dynamical systems
– Second case: b 6= 0 (nonhomogeneous equation)
⇒ xt+1 = axt + b, with a, b ∈ R \ {0}.
• Subcase I: a = 1
⇒ xt+1 = xt + b, with b ∈ R \ {0}, and initial condition x0 ∈ R.
We have x1 = x0 + b, x2 = x1 + b = (x0 + b) + b = x0 + 2b, . . . ,xt = xt−1 + b = (x0 + (t − 1)b) + b = x0 + tb.
In this case there are no equilibria.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 37 / 139
![Page 90: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/90.jpg)
1D discrete dynamical systems
– Second case: b 6= 0 (nonhomogeneous equation)
⇒ xt+1 = axt + b, with a, b ∈ R \ {0}.
• Subcase I: a = 1
⇒ xt+1 = xt + b, with b ∈ R \ {0}, and initial condition x0 ∈ R.
We have x1 = x0 + b, x2 = x1 + b = (x0 + b) + b = x0 + 2b, . . . ,xt = xt−1 + b = (x0 + (t − 1)b) + b = x0 + tb.
In this case there are no equilibria.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 37 / 139
![Page 91: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/91.jpg)
1D discrete dynamical systems
– Second case: b 6= 0 (nonhomogeneous equation)
⇒ xt+1 = axt + b, with a, b ∈ R \ {0}.
• Subcase I: a = 1
⇒ xt+1 = xt + b, with b ∈ R \ {0}, and initial condition x0 ∈ R.
We have x1 = x0 + b, x2 = x1 + b = (x0 + b) + b = x0 + 2b, . . . ,xt = xt−1 + b = (x0 + (t − 1)b) + b = x0 + tb.
In this case there are no equilibria.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 37 / 139
![Page 92: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/92.jpg)
1D discrete dynamical systems
– Second case: b 6= 0 (nonhomogeneous equation)
⇒ xt+1 = axt + b, with a, b ∈ R \ {0}.
• Subcase I: a = 1
⇒ xt+1 = xt + b, with b ∈ R \ {0}, and initial condition x0 ∈ R.
We have x1 = x0 + b, x2 = x1 + b = (x0 + b) + b = x0 + 2b, . . . ,xt = xt−1 + b = (x0 + (t − 1)b) + b = x0 + tb.
In this case there are no equilibria.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 37 / 139
![Page 93: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/93.jpg)
1D discrete dynamical systems
a = 1, b = 3, x0 = −7
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 38 / 139
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1D discrete dynamical systems
a = 1, b = −5, x0 = 9
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 39 / 139
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1D discrete dynamical systems
– Second case: b 6= 0 (nonhomogeneous equation)
• Subcase II: a 6= 1
xt+1 = axt + b, with a, b ∈ R \ {0}, a 6= 1, and initial condition x0 ∈ R.
The system has x∗ = b1−a as unique equilibrium.
x∗ = b1−a is globally asymptotically stable for |a| < 1, and unstable for
|a| > 1.
Since xt+1 − x∗ = axt + b − x∗ = axt − ab1−a = a(xt − x∗),
then setting yt = xt − x∗ for t ∈ N we obtainyt+1 = ayt ⇒ yt = aty0, i.e., xt − x∗ = at (x0 − x∗) ⇒xt = x∗+at (x0−x∗) = atx0+x∗(1−at ) = atx0+b 1−at
1−a = atx0 + b∑t−1
i=0 ai
(recalling that 1− at = (1− a)(1 + a + a2 + · · ·+ at−1), for t ∈ N)
If b = 0, we find again xt = atx0, with the unique equilibrium x∗ = 0globally asymptotically stable for |a| < 1, and unstable for |a| > 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 40 / 139
![Page 96: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/96.jpg)
1D discrete dynamical systems
– Second case: b 6= 0 (nonhomogeneous equation)
• Subcase II: a 6= 1
xt+1 = axt + b, with a, b ∈ R \ {0}, a 6= 1, and initial condition x0 ∈ R.
The system has x∗ = b1−a as unique equilibrium.
x∗ = b1−a is globally asymptotically stable for |a| < 1, and unstable for
|a| > 1.
Since xt+1 − x∗ = axt + b − x∗ = axt − ab1−a = a(xt − x∗),
then setting yt = xt − x∗ for t ∈ N we obtainyt+1 = ayt ⇒ yt = aty0, i.e., xt − x∗ = at (x0 − x∗) ⇒xt = x∗+at (x0−x∗) = atx0+x∗(1−at ) = atx0+b 1−at
1−a = atx0 + b∑t−1
i=0 ai
(recalling that 1− at = (1− a)(1 + a + a2 + · · ·+ at−1), for t ∈ N)
If b = 0, we find again xt = atx0, with the unique equilibrium x∗ = 0globally asymptotically stable for |a| < 1, and unstable for |a| > 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 40 / 139
![Page 97: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/97.jpg)
1D discrete dynamical systems
– Second case: b 6= 0 (nonhomogeneous equation)
• Subcase II: a 6= 1
xt+1 = axt + b, with a, b ∈ R \ {0}, a 6= 1, and initial condition x0 ∈ R.
The system has x∗ = b1−a as unique equilibrium.
x∗ = b1−a is globally asymptotically stable for |a| < 1, and unstable for
|a| > 1.
Since xt+1 − x∗ = axt + b − x∗ = axt − ab1−a = a(xt − x∗),
then setting yt = xt − x∗ for t ∈ N we obtainyt+1 = ayt ⇒ yt = aty0, i.e., xt − x∗ = at (x0 − x∗) ⇒xt = x∗+at (x0−x∗) = atx0+x∗(1−at ) = atx0+b 1−at
1−a = atx0 + b∑t−1
i=0 ai
(recalling that 1− at = (1− a)(1 + a + a2 + · · ·+ at−1), for t ∈ N)
If b = 0, we find again xt = atx0, with the unique equilibrium x∗ = 0globally asymptotically stable for |a| < 1, and unstable for |a| > 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 40 / 139
![Page 98: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/98.jpg)
1D discrete dynamical systems
– Second case: b 6= 0 (nonhomogeneous equation)
• Subcase II: a 6= 1
xt+1 = axt + b, with a, b ∈ R \ {0}, a 6= 1, and initial condition x0 ∈ R.
The system has x∗ = b1−a as unique equilibrium.
x∗ = b1−a is globally asymptotically stable for |a| < 1, and unstable for
|a| > 1.
Since xt+1 − x∗ = axt + b − x∗ = axt − ab1−a = a(xt − x∗),
then setting yt = xt − x∗ for t ∈ N we obtainyt+1 = ayt ⇒ yt = aty0, i.e., xt − x∗ = at (x0 − x∗) ⇒xt = x∗+at (x0−x∗) = atx0+x∗(1−at ) = atx0+b 1−at
1−a = atx0 + b∑t−1
i=0 ai
(recalling that 1− at = (1− a)(1 + a + a2 + · · ·+ at−1), for t ∈ N)
If b = 0, we find again xt = atx0, with the unique equilibrium x∗ = 0globally asymptotically stable for |a| < 1, and unstable for |a| > 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 40 / 139
![Page 99: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/99.jpg)
1D discrete dynamical systems
– Second case: b 6= 0 (nonhomogeneous equation)
• Subcase II: a 6= 1
xt+1 = axt + b, with a, b ∈ R \ {0}, a 6= 1, and initial condition x0 ∈ R.
The system has x∗ = b1−a as unique equilibrium.
x∗ = b1−a is globally asymptotically stable for |a| < 1, and unstable for
|a| > 1.
Since xt+1 − x∗ = axt + b − x∗ = axt − ab1−a = a(xt − x∗),
then setting yt = xt − x∗ for t ∈ N we obtainyt+1 = ayt ⇒ yt = aty0, i.e., xt − x∗ = at (x0 − x∗) ⇒xt = x∗+at (x0−x∗) = atx0+x∗(1−at ) = atx0+b 1−at
1−a = atx0 + b∑t−1
i=0 ai
(recalling that 1− at = (1− a)(1 + a + a2 + · · ·+ at−1), for t ∈ N)
If b = 0, we find again xt = atx0, with the unique equilibrium x∗ = 0globally asymptotically stable for |a| < 1, and unstable for |a| > 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 40 / 139
![Page 100: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/100.jpg)
1D discrete dynamical systems
– Second case: b 6= 0 (nonhomogeneous equation)
• Subcase II: a 6= 1
xt+1 = axt + b, with a, b ∈ R \ {0}, a 6= 1, and initial condition x0 ∈ R.
The system has x∗ = b1−a as unique equilibrium.
x∗ = b1−a is globally asymptotically stable for |a| < 1, and unstable for
|a| > 1.
Since xt+1 − x∗ = axt + b − x∗ = axt − ab1−a = a(xt − x∗),
then setting yt = xt − x∗ for t ∈ N we obtainyt+1 = ayt ⇒ yt = aty0, i.e., xt − x∗ = at (x0 − x∗) ⇒xt = x∗+at (x0−x∗) = atx0+x∗(1−at ) = atx0+b 1−at
1−a = atx0 + b∑t−1
i=0 ai
(recalling that 1− at = (1− a)(1 + a + a2 + · · ·+ at−1), for t ∈ N)
If b = 0, we find again xt = atx0, with the unique equilibrium x∗ = 0globally asymptotically stable for |a| < 1, and unstable for |a| > 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 40 / 139
![Page 101: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/101.jpg)
1D discrete dynamical systems
– Second case: b 6= 0 (nonhomogeneous equation)
• Subcase II: a 6= 1
xt+1 = axt + b, with a, b ∈ R \ {0}, a 6= 1, and initial condition x0 ∈ R.
The system has x∗ = b1−a as unique equilibrium.
x∗ = b1−a is globally asymptotically stable for |a| < 1, and unstable for
|a| > 1.
Since xt+1 − x∗ = axt + b − x∗ = axt − ab1−a = a(xt − x∗),
then setting yt = xt − x∗ for t ∈ N we obtainyt+1 = ayt ⇒ yt = aty0, i.e., xt − x∗ = at (x0 − x∗) ⇒xt = x∗+at (x0−x∗) = atx0+x∗(1−at ) = atx0+b 1−at
1−a = atx0 + b∑t−1
i=0 ai
(recalling that 1− at = (1− a)(1 + a + a2 + · · ·+ at−1), for t ∈ N)
If b = 0, we find again xt = atx0, with the unique equilibrium x∗ = 0globally asymptotically stable for |a| < 1, and unstable for |a| > 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 40 / 139
![Page 102: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/102.jpg)
1D discrete dynamical systems
– Second case: b 6= 0 (nonhomogeneous equation)
• Subcase II: a 6= 1
xt+1 = axt + b, with a, b ∈ R \ {0}, a 6= 1, and initial condition x0 ∈ R.
The system has x∗ = b1−a as unique equilibrium.
x∗ = b1−a is globally asymptotically stable for |a| < 1, and unstable for
|a| > 1.
Since xt+1 − x∗ = axt + b − x∗ = axt − ab1−a = a(xt − x∗),
then setting yt = xt − x∗ for t ∈ N we obtainyt+1 = ayt ⇒ yt = aty0, i.e., xt − x∗ = at (x0 − x∗) ⇒xt = x∗+at (x0−x∗) = atx0+x∗(1−at ) = atx0+b 1−at
1−a = atx0 + b∑t−1
i=0 ai
(recalling that 1− at = (1− a)(1 + a + a2 + · · ·+ at−1), for t ∈ N)
If b = 0, we find again xt = atx0, with the unique equilibrium x∗ = 0globally asymptotically stable for |a| < 1, and unstable for |a| > 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 40 / 139
![Page 103: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/103.jpg)
1D discrete dynamical systems
a = 2, b = −0.5, x0 = 0.4
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 41 / 139
![Page 104: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/104.jpg)
1D discrete dynamical systems
a = −2, b = −0.5, x0 = −0.2
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 42 / 139
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1D discrete dynamical systems
a = 0.5, b = 0.4, x0 = −1
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 43 / 139
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1D discrete dynamical systems
a = −0.7, b = 0.4, x0 = −1
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 44 / 139
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1D discrete dynamical systems
Example: the cobweb model
Demand qdt at time t depends on the current price pt , while the supply
qst at time t depends on planting, which in turn was governed by the
price pt−1 the farmer received in the last period.
The market is cleared in any period⇒ qdt = qs
t , ∀t .
Assuming linear demand and supply curves, the model is:
qdt = a− bpt , a, b > 0
qst = c + dpt−1, c ∈ R, d > 0,
qdt = qs
t
from which a− bpt = c + dpt−1, or pt = −db pt−1 + a−c
b .
The solution is given by pt =(−d
b
)tp0 + a−c
b∑t−1
i=0(−d
b
)i.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 45 / 139
![Page 108: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/108.jpg)
1D discrete dynamical systems
Example: the cobweb model
Demand qdt at time t depends on the current price pt , while the supply
qst at time t depends on planting, which in turn was governed by the
price pt−1 the farmer received in the last period.
The market is cleared in any period⇒ qdt = qs
t , ∀t .
Assuming linear demand and supply curves, the model is:
qdt = a− bpt , a, b > 0
qst = c + dpt−1, c ∈ R, d > 0,
qdt = qs
t
from which a− bpt = c + dpt−1, or pt = −db pt−1 + a−c
b .
The solution is given by pt =(−d
b
)tp0 + a−c
b∑t−1
i=0(−d
b
)i.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 45 / 139
![Page 109: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/109.jpg)
1D discrete dynamical systems
Example: the cobweb model
Demand qdt at time t depends on the current price pt , while the supply
qst at time t depends on planting, which in turn was governed by the
price pt−1 the farmer received in the last period.
The market is cleared in any period⇒ qdt = qs
t , ∀t .
Assuming linear demand and supply curves, the model is:
qdt = a− bpt , a, b > 0
qst = c + dpt−1, c ∈ R, d > 0,
qdt = qs
t
from which a− bpt = c + dpt−1, or pt = −db pt−1 + a−c
b .
The solution is given by pt =(−d
b
)tp0 + a−c
b∑t−1
i=0(−d
b
)i.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 45 / 139
![Page 110: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/110.jpg)
1D discrete dynamical systems
Example: the cobweb model
Demand qdt at time t depends on the current price pt , while the supply
qst at time t depends on planting, which in turn was governed by the
price pt−1 the farmer received in the last period.
The market is cleared in any period⇒ qdt = qs
t , ∀t .
Assuming linear demand and supply curves, the model is:
qdt = a− bpt , a, b > 0
qst = c + dpt−1, c ∈ R, d > 0,
qdt = qs
t
from which a− bpt = c + dpt−1, or pt = −db pt−1 + a−c
b .
The solution is given by pt =(−d
b
)tp0 + a−c
b∑t−1
i=0(−d
b
)i.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 45 / 139
![Page 111: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/111.jpg)
1D discrete dynamical systems
Example: the cobweb model
Demand qdt at time t depends on the current price pt , while the supply
qst at time t depends on planting, which in turn was governed by the
price pt−1 the farmer received in the last period.
The market is cleared in any period⇒ qdt = qs
t , ∀t .
Assuming linear demand and supply curves, the model is:
qdt = a− bpt , a, b > 0
qst = c + dpt−1, c ∈ R, d > 0,
qdt = qs
t
from which a− bpt = c + dpt−1, or pt = −db pt−1 + a−c
b .
The solution is given by pt =(−d
b
)tp0 + a−c
b∑t−1
i=0(−d
b
)i.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 45 / 139
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1D discrete dynamical systems
Example: the cobweb model
Demand qdt at time t depends on the current price pt , while the supply
qst at time t depends on planting, which in turn was governed by the
price pt−1 the farmer received in the last period.
The market is cleared in any period⇒ qdt = qs
t , ∀t .
Assuming linear demand and supply curves, the model is:
qdt = a− bpt , a, b > 0
qst = c + dpt−1, c ∈ R, d > 0,
qdt = qs
t
from which a− bpt = c + dpt−1, or pt = −db pt−1 + a−c
b .
The solution is given by pt =(−d
b
)tp0 + a−c
b∑t−1
i=0(−d
b
)i.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 45 / 139
![Page 113: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/113.jpg)
1D discrete dynamical systems
Example: the cobweb model
Demand qdt at time t depends on the current price pt , while the supply
qst at time t depends on planting, which in turn was governed by the
price pt−1 the farmer received in the last period.
The market is cleared in any period⇒ qdt = qs
t , ∀t .
Assuming linear demand and supply curves, the model is:
qdt = a− bpt , a, b > 0
qst = c + dpt−1, c ∈ R, d > 0,
qdt = qs
t
from which a− bpt = c + dpt−1, or pt = −db pt−1 + a−c
b .
The solution is given by pt =(−d
b
)tp0 + a−c
b∑t−1
i=0(−d
b
)i.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 45 / 139
![Page 114: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/114.jpg)
1D discrete dynamical systems
Example: the cobweb model
Demand qdt at time t depends on the current price pt , while the supply
qst at time t depends on planting, which in turn was governed by the
price pt−1 the farmer received in the last period.
The market is cleared in any period⇒ qdt = qs
t , ∀t .
Assuming linear demand and supply curves, the model is:
qdt = a− bpt , a, b > 0
qst = c + dpt−1, c ∈ R, d > 0,
qdt = qs
t
from which a− bpt = c + dpt−1, or pt = −db pt−1 + a−c
b .
The solution is given by pt =(−d
b
)tp0 + a−c
b∑t−1
i=0(−d
b
)i.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 45 / 139
![Page 115: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/115.jpg)
1D discrete dynamical systems
The unique equilibrium p∗ = a−cb+d is globally asymptotically stable for
db < 1, and unstable for d
b > 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 46 / 139
![Page 116: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/116.jpg)
1D discrete dynamical systems
a = 1.7, b = 1.3, c = −0.3, d = 1, p0 = 0.5
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 47 / 139
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1D discrete dynamical systems
a = 1.7, b = 1, c = −0.3, d = 1.3, p0 = 0.5
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 48 / 139
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1D discrete dynamical systems
Summarizing:
Solution for xt+1 = axt + b, with initial condition x0 ∈ R :
• if b 6= 0 and a = 1⇒ xt = x0 + tb.
In this case there are no equilibria.
• In all other cases⇒ xt = atx0 + b∑t−1
i=0 ai .
The unique equilibrium x∗ = b1−a is globally asymptotically stable for
|a| < 1, and unstable for |a| > 1.
Rmk: the more general case xt+1 = atxt + bt can be handled similarly,but the solution has a more complex formulation.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 49 / 139
![Page 119: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/119.jpg)
1D discrete dynamical systems
Summarizing:
Solution for xt+1 = axt + b, with initial condition x0 ∈ R :
• if b 6= 0 and a = 1⇒ xt = x0 + tb.
In this case there are no equilibria.
• In all other cases⇒ xt = atx0 + b∑t−1
i=0 ai .
The unique equilibrium x∗ = b1−a is globally asymptotically stable for
|a| < 1, and unstable for |a| > 1.
Rmk: the more general case xt+1 = atxt + bt can be handled similarly,but the solution has a more complex formulation.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 49 / 139
![Page 120: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/120.jpg)
1D discrete dynamical systems
Summarizing:
Solution for xt+1 = axt + b, with initial condition x0 ∈ R :
• if b 6= 0 and a = 1⇒ xt = x0 + tb.
In this case there are no equilibria.
• In all other cases⇒ xt = atx0 + b∑t−1
i=0 ai .
The unique equilibrium x∗ = b1−a is globally asymptotically stable for
|a| < 1, and unstable for |a| > 1.
Rmk: the more general case xt+1 = atxt + bt can be handled similarly,but the solution has a more complex formulation.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 49 / 139
![Page 121: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/121.jpg)
1D discrete dynamical systems
Summarizing:
Solution for xt+1 = axt + b, with initial condition x0 ∈ R :
• if b 6= 0 and a = 1⇒ xt = x0 + tb.
In this case there are no equilibria.
• In all other cases⇒ xt = atx0 + b∑t−1
i=0 ai .
The unique equilibrium x∗ = b1−a is globally asymptotically stable for
|a| < 1, and unstable for |a| > 1.
Rmk: the more general case xt+1 = atxt + bt can be handled similarly,but the solution has a more complex formulation.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 49 / 139
![Page 122: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/122.jpg)
1D discrete dynamical systems
Summarizing:
Solution for xt+1 = axt + b, with initial condition x0 ∈ R :
• if b 6= 0 and a = 1⇒ xt = x0 + tb.
In this case there are no equilibria.
• In all other cases⇒ xt = atx0 + b∑t−1
i=0 ai .
The unique equilibrium x∗ = b1−a is globally asymptotically stable for
|a| < 1, and unstable for |a| > 1.
Rmk: the more general case xt+1 = atxt + bt can be handled similarly,but the solution has a more complex formulation.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 49 / 139
![Page 123: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/123.jpg)
1D discrete dynamical systems
Summarizing:
Solution for xt+1 = axt + b, with initial condition x0 ∈ R :
• if b 6= 0 and a = 1⇒ xt = x0 + tb.
In this case there are no equilibria.
• In all other cases⇒ xt = atx0 + b∑t−1
i=0 ai .
The unique equilibrium x∗ = b1−a is globally asymptotically stable for
|a| < 1, and unstable for |a| > 1.
Rmk: the more general case xt+1 = atxt + bt can be handled similarly,but the solution has a more complex formulation.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 49 / 139
![Page 124: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/124.jpg)
1D discrete dynamical systems
Summarizing:
Solution for xt+1 = axt + b, with initial condition x0 ∈ R :
• if b 6= 0 and a = 1⇒ xt = x0 + tb.
In this case there are no equilibria.
• In all other cases⇒ xt = atx0 + b∑t−1
i=0 ai .
The unique equilibrium x∗ = b1−a is globally asymptotically stable for
|a| < 1, and unstable for |a| > 1.
Rmk: the more general case xt+1 = atxt + bt can be handled similarly,but the solution has a more complex formulation.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 49 / 139
![Page 125: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/125.jpg)
1D discrete dynamical systems
Two important points:
A) Why do we use derivatives to check the local stability of equilibria?
If f is continuously differentiable, we can linearize it in a neighborhoodof x∗ as follows:
f (x)− x∗ = f ′(x∗)(x − x∗) + r(x − x∗),
with r(x − x∗) = o(|x − x∗|) as x − x∗ → 0.
Ignoring the remainder term, we obtain
f (x) ≈f ′(x∗)x + x∗(1− f ′(x∗)).
The rhs is a linear equation in x with slope f ′(x∗).
If the absolute slope is less than that of the 45-degree line (i.e.,f ′(x∗) ∈ (−1,1)), then x∗ is locally asymptotically stable.Otherwise, x∗ is unstable.
Such stability condition can be used at any equilibrium.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 50 / 139
![Page 126: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/126.jpg)
1D discrete dynamical systems
Two important points:
A) Why do we use derivatives to check the local stability of equilibria?
If f is continuously differentiable, we can linearize it in a neighborhoodof x∗ as follows:
f (x)− x∗ = f ′(x∗)(x − x∗) + r(x − x∗),
with r(x − x∗) = o(|x − x∗|) as x − x∗ → 0.
Ignoring the remainder term, we obtain
f (x) ≈f ′(x∗)x + x∗(1− f ′(x∗)).
The rhs is a linear equation in x with slope f ′(x∗).
If the absolute slope is less than that of the 45-degree line (i.e.,f ′(x∗) ∈ (−1,1)), then x∗ is locally asymptotically stable.Otherwise, x∗ is unstable.
Such stability condition can be used at any equilibrium.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 50 / 139
![Page 127: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/127.jpg)
1D discrete dynamical systems
Two important points:
A) Why do we use derivatives to check the local stability of equilibria?
If f is continuously differentiable, we can linearize it in a neighborhoodof x∗ as follows:
f (x)− x∗ = f ′(x∗)(x − x∗) + r(x − x∗),
with r(x − x∗) = o(|x − x∗|) as x − x∗ → 0.
Ignoring the remainder term, we obtain
f (x) ≈f ′(x∗)x + x∗(1− f ′(x∗)).
The rhs is a linear equation in x with slope f ′(x∗).
If the absolute slope is less than that of the 45-degree line (i.e.,f ′(x∗) ∈ (−1,1)), then x∗ is locally asymptotically stable.Otherwise, x∗ is unstable.
Such stability condition can be used at any equilibrium.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 50 / 139
![Page 128: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/128.jpg)
1D discrete dynamical systems
Two important points:
A) Why do we use derivatives to check the local stability of equilibria?
If f is continuously differentiable, we can linearize it in a neighborhoodof x∗ as follows:
f (x)− x∗ = f ′(x∗)(x − x∗) + r(x − x∗),
with r(x − x∗) = o(|x − x∗|) as x − x∗ → 0.
Ignoring the remainder term, we obtain
f (x) ≈f ′(x∗)x + x∗(1− f ′(x∗)).
The rhs is a linear equation in x with slope f ′(x∗).
If the absolute slope is less than that of the 45-degree line (i.e.,f ′(x∗) ∈ (−1,1)), then x∗ is locally asymptotically stable.Otherwise, x∗ is unstable.
Such stability condition can be used at any equilibrium.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 50 / 139
![Page 129: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/129.jpg)
1D discrete dynamical systems
Two important points:
A) Why do we use derivatives to check the local stability of equilibria?
If f is continuously differentiable, we can linearize it in a neighborhoodof x∗ as follows:
f (x)− x∗ = f ′(x∗)(x − x∗) + r(x − x∗),
with r(x − x∗) = o(|x − x∗|) as x − x∗ → 0.
Ignoring the remainder term, we obtain
f (x) ≈f ′(x∗)x + x∗(1− f ′(x∗)).
The rhs is a linear equation in x with slope f ′(x∗).
If the absolute slope is less than that of the 45-degree line (i.e.,f ′(x∗) ∈ (−1,1)), then x∗ is locally asymptotically stable.Otherwise, x∗ is unstable.
Such stability condition can be used at any equilibrium.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 50 / 139
![Page 130: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/130.jpg)
1D discrete dynamical systems
Two important points:
A) Why do we use derivatives to check the local stability of equilibria?
If f is continuously differentiable, we can linearize it in a neighborhoodof x∗ as follows:
f (x)− x∗ = f ′(x∗)(x − x∗) + r(x − x∗),
with r(x − x∗) = o(|x − x∗|) as x − x∗ → 0.
Ignoring the remainder term, we obtain
f (x) ≈f ′(x∗)x + x∗(1− f ′(x∗)).
The rhs is a linear equation in x with slope f ′(x∗).
If the absolute slope is less than that of the 45-degree line (i.e.,f ′(x∗) ∈ (−1,1)), then x∗ is locally asymptotically stable.Otherwise, x∗ is unstable.
Such stability condition can be used at any equilibrium.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 50 / 139
![Page 131: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/131.jpg)
1D discrete dynamical systems
Two important points:
A) Why do we use derivatives to check the local stability of equilibria?
If f is continuously differentiable, we can linearize it in a neighborhoodof x∗ as follows:
f (x)− x∗ = f ′(x∗)(x − x∗) + r(x − x∗),
with r(x − x∗) = o(|x − x∗|) as x − x∗ → 0.
Ignoring the remainder term, we obtain
f (x) ≈f ′(x∗)x + x∗(1− f ′(x∗)).
The rhs is a linear equation in x with slope f ′(x∗).
If the absolute slope is less than that of the 45-degree line (i.e.,f ′(x∗) ∈ (−1,1)), then x∗ is locally asymptotically stable.Otherwise, x∗ is unstable.
Such stability condition can be used at any equilibrium.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 50 / 139
![Page 132: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/132.jpg)
1D discrete dynamical systems
Two important points:
A) Why do we use derivatives to check the local stability of equilibria?
If f is continuously differentiable, we can linearize it in a neighborhoodof x∗ as follows:
f (x)− x∗ = f ′(x∗)(x − x∗) + r(x − x∗),
with r(x − x∗) = o(|x − x∗|) as x − x∗ → 0.
Ignoring the remainder term, we obtain
f (x) ≈f ′(x∗)x + x∗(1− f ′(x∗)).
The rhs is a linear equation in x with slope f ′(x∗).
If the absolute slope is less than that of the 45-degree line (i.e.,f ′(x∗) ∈ (−1,1)), then x∗ is locally asymptotically stable.Otherwise, x∗ is unstable.
Such stability condition can be used at any equilibrium.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 50 / 139
![Page 133: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/133.jpg)
1D discrete dynamical systems
Two important points:
A) Why do we use derivatives to check the local stability of equilibria?
If f is continuously differentiable, we can linearize it in a neighborhoodof x∗ as follows:
f (x)− x∗ = f ′(x∗)(x − x∗) + r(x − x∗),
with r(x − x∗) = o(|x − x∗|) as x − x∗ → 0.
Ignoring the remainder term, we obtain
f (x) ≈f ′(x∗)x + x∗(1− f ′(x∗)).
The rhs is a linear equation in x with slope f ′(x∗).
If the absolute slope is less than that of the 45-degree line (i.e.,f ′(x∗) ∈ (−1,1)), then x∗ is locally asymptotically stable.Otherwise, x∗ is unstable.
Such stability condition can be used at any equilibrium.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 50 / 139
![Page 134: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/134.jpg)
1D discrete dynamical systems
Two important points:
A) Why do we use derivatives to check the local stability of equilibria?
If f is continuously differentiable, we can linearize it in a neighborhoodof x∗ as follows:
f (x)− x∗ = f ′(x∗)(x − x∗) + r(x − x∗),
with r(x − x∗) = o(|x − x∗|) as x − x∗ → 0.
Ignoring the remainder term, we obtain
f (x) ≈f ′(x∗)x + x∗(1− f ′(x∗)).
The rhs is a linear equation in x with slope f ′(x∗).
If the absolute slope is less than that of the 45-degree line (i.e.,f ′(x∗) ∈ (−1,1)), then x∗ is locally asymptotically stable.Otherwise, x∗ is unstable.
Such stability condition can be used at any equilibrium.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 50 / 139
![Page 135: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/135.jpg)
1D discrete dynamical systems
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 51 / 139
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1D discrete dynamical systems
Even if we confine ourselves only to stable equilibria, with nonlineardynamical systems there may be many.
This leads to some new and interesting policy implications.
The welfare attached to each equilibrium will be probably different.
If this is so, then it is possible for governments to choose between thevarious equilibrium points.
With linear systems in which only one equilibrium exists, suchquestions are meaningless.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 52 / 139
![Page 137: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/137.jpg)
1D discrete dynamical systems
Even if we confine ourselves only to stable equilibria, with nonlineardynamical systems there may be many.
This leads to some new and interesting policy implications.
The welfare attached to each equilibrium will be probably different.
If this is so, then it is possible for governments to choose between thevarious equilibrium points.
With linear systems in which only one equilibrium exists, suchquestions are meaningless.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 52 / 139
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1D discrete dynamical systems
Even if we confine ourselves only to stable equilibria, with nonlineardynamical systems there may be many.
This leads to some new and interesting policy implications.
The welfare attached to each equilibrium will be probably different.
If this is so, then it is possible for governments to choose between thevarious equilibrium points.
With linear systems in which only one equilibrium exists, suchquestions are meaningless.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 52 / 139
![Page 139: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/139.jpg)
1D discrete dynamical systems
Even if we confine ourselves only to stable equilibria, with nonlineardynamical systems there may be many.
This leads to some new and interesting policy implications.
The welfare attached to each equilibrium will be probably different.
If this is so, then it is possible for governments to choose between thevarious equilibrium points.
With linear systems in which only one equilibrium exists, suchquestions are meaningless.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 52 / 139
![Page 140: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/140.jpg)
1D discrete dynamical systems
Even if we confine ourselves only to stable equilibria, with nonlineardynamical systems there may be many.
This leads to some new and interesting policy implications.
The welfare attached to each equilibrium will be probably different.
If this is so, then it is possible for governments to choose between thevarious equilibrium points.
With linear systems in which only one equilibrium exists, suchquestions are meaningless.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 52 / 139
![Page 141: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/141.jpg)
1D discrete dynamical systems
B) With nonlinear dynamical systems, the local stability of anequilibrium does not give any information on the global dynamics.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 53 / 139
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1D discrete dynamical systems
Periodic points and their stability
If xt+1 = f (xt ) is a discrete dynamical system, then x is a periodic pointof the system with period k if f k (x) = x for some positive integer k . Inthis case x is called k -periodic.
If in addition f i(x) 6= x , for 0 < i < k , then k is called the minimalperiod of x .
Since by definition x is k -periodic if it is a fixed point of the map f k , thek -periodic points are found as the intersections between the graph off k and the 45-degree line xt+1 = xt .
Moreover, if k is the minimal period of x , then its orbit is given byO(x) = {x , f (x), f 2(x), . . . , f k−1(x)}. This is called a k-periodic cycle.
In terms of the system, it follows that, starting from x0 = x , we findxt+k = xt , for all t ∈ N, i.e., the system admits the k -periodic solution{x , f (x), f 2(x), . . . , f k−1(x)}.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 54 / 139
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1D discrete dynamical systems
Periodic points and their stability
If xt+1 = f (xt ) is a discrete dynamical system, then x is a periodic pointof the system with period k if f k (x) = x for some positive integer k . Inthis case x is called k -periodic.
If in addition f i(x) 6= x , for 0 < i < k , then k is called the minimalperiod of x .
Since by definition x is k -periodic if it is a fixed point of the map f k , thek -periodic points are found as the intersections between the graph off k and the 45-degree line xt+1 = xt .
Moreover, if k is the minimal period of x , then its orbit is given byO(x) = {x , f (x), f 2(x), . . . , f k−1(x)}. This is called a k-periodic cycle.
In terms of the system, it follows that, starting from x0 = x , we findxt+k = xt , for all t ∈ N, i.e., the system admits the k -periodic solution{x , f (x), f 2(x), . . . , f k−1(x)}.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 54 / 139
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1D discrete dynamical systems
Periodic points and their stability
If xt+1 = f (xt ) is a discrete dynamical system, then x is a periodic pointof the system with period k if f k (x) = x for some positive integer k . Inthis case x is called k -periodic.
If in addition f i(x) 6= x , for 0 < i < k , then k is called the minimalperiod of x .
Since by definition x is k -periodic if it is a fixed point of the map f k , thek -periodic points are found as the intersections between the graph off k and the 45-degree line xt+1 = xt .
Moreover, if k is the minimal period of x , then its orbit is given byO(x) = {x , f (x), f 2(x), . . . , f k−1(x)}. This is called a k-periodic cycle.
In terms of the system, it follows that, starting from x0 = x , we findxt+k = xt , for all t ∈ N, i.e., the system admits the k -periodic solution{x , f (x), f 2(x), . . . , f k−1(x)}.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 54 / 139
![Page 145: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/145.jpg)
1D discrete dynamical systems
Periodic points and their stability
If xt+1 = f (xt ) is a discrete dynamical system, then x is a periodic pointof the system with period k if f k (x) = x for some positive integer k . Inthis case x is called k -periodic.
If in addition f i(x) 6= x , for 0 < i < k , then k is called the minimalperiod of x .
Since by definition x is k -periodic if it is a fixed point of the map f k , thek -periodic points are found as the intersections between the graph off k and the 45-degree line xt+1 = xt .
Moreover, if k is the minimal period of x , then its orbit is given byO(x) = {x , f (x), f 2(x), . . . , f k−1(x)}. This is called a k-periodic cycle.
In terms of the system, it follows that, starting from x0 = x , we findxt+k = xt , for all t ∈ N, i.e., the system admits the k -periodic solution{x , f (x), f 2(x), . . . , f k−1(x)}.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 54 / 139
![Page 146: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/146.jpg)
1D discrete dynamical systems
Periodic points and their stability
If xt+1 = f (xt ) is a discrete dynamical system, then x is a periodic pointof the system with period k if f k (x) = x for some positive integer k . Inthis case x is called k -periodic.
If in addition f i(x) 6= x , for 0 < i < k , then k is called the minimalperiod of x .
Since by definition x is k -periodic if it is a fixed point of the map f k , thek -periodic points are found as the intersections between the graph off k and the 45-degree line xt+1 = xt .
Moreover, if k is the minimal period of x , then its orbit is given byO(x) = {x , f (x), f 2(x), . . . , f k−1(x)}. This is called a k-periodic cycle.
In terms of the system, it follows that, starting from x0 = x , we findxt+k = xt , for all t ∈ N, i.e., the system admits the k -periodic solution{x , f (x), f 2(x), . . . , f k−1(x)}.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 54 / 139
![Page 147: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/147.jpg)
1D discrete dynamical systems
Let x be a periodic point of f with minimal period k . Then we say that:
x is asymptotically stable if it is an asymptotically stable fixed pointof f k .
x is unstable if it is an unstable fixed point of f k .
Hence, studying the stability of k -periodic solutions of xt+1 = f (xt )reduces to studying the stability of the equilibrium points of theassociated difference equation yt+1 = f k (yt ).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 55 / 139
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1D discrete dynamical systems
Let x be a periodic point of f with minimal period k . Then we say that:
x is asymptotically stable if it is an asymptotically stable fixed pointof f k .
x is unstable if it is an unstable fixed point of f k .
Hence, studying the stability of k -periodic solutions of xt+1 = f (xt )reduces to studying the stability of the equilibrium points of theassociated difference equation yt+1 = f k (yt ).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 55 / 139
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1D discrete dynamical systems
Let x be a periodic point of f with minimal period k . Then we say that:
x is asymptotically stable if it is an asymptotically stable fixed pointof f k .
x is unstable if it is an unstable fixed point of f k .
Hence, studying the stability of k -periodic solutions of xt+1 = f (xt )reduces to studying the stability of the equilibrium points of theassociated difference equation yt+1 = f k (yt ).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 55 / 139
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1D discrete dynamical systems
Let x be a periodic point of f with minimal period k . Then we say that:
x is asymptotically stable if it is an asymptotically stable fixed pointof f k .
x is unstable if it is an unstable fixed point of f k .
Hence, studying the stability of k -periodic solutions of xt+1 = f (xt )reduces to studying the stability of the equilibrium points of theassociated difference equation yt+1 = f k (yt ).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 55 / 139
![Page 151: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/151.jpg)
1D discrete dynamical systems
Since by the chain rule we have that
ddx
f k (x) = f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x)),
we find the following practical criterion to check the stability of periodicpoints:
TheoremGiven the discrete dynamical system xt+1 = f (xt ), let x be a periodicpoint of f with minimal period k . If f is continuously differentiable atevery point of O(x), then it holds that:
(i) if |f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x))| < 1, then x is locallyasymptotically stable;
(ii) if |f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x))| > 1, then x is unstable.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 56 / 139
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1D discrete dynamical systems
Since by the chain rule we have that
ddx
f k (x) = f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x)),
we find the following practical criterion to check the stability of periodicpoints:
TheoremGiven the discrete dynamical system xt+1 = f (xt ), let x be a periodicpoint of f with minimal period k . If f is continuously differentiable atevery point of O(x), then it holds that:
(i) if |f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x))| < 1, then x is locallyasymptotically stable;
(ii) if |f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x))| > 1, then x is unstable.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 56 / 139
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1D discrete dynamical systems
Since by the chain rule we have that
ddx
f k (x) = f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x)),
we find the following practical criterion to check the stability of periodicpoints:
TheoremGiven the discrete dynamical system xt+1 = f (xt ), let x be a periodicpoint of f with minimal period k . If f is continuously differentiable atevery point of O(x), then it holds that:
(i) if |f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x))| < 1, then x is locallyasymptotically stable;
(ii) if |f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x))| > 1, then x is unstable.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 56 / 139
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1D discrete dynamical systems
Since by the chain rule we have that
ddx
f k (x) = f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x)),
we find the following practical criterion to check the stability of periodicpoints:
TheoremGiven the discrete dynamical system xt+1 = f (xt ), let x be a periodicpoint of f with minimal period k . If f is continuously differentiable atevery point of O(x), then it holds that:
(i) if |f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x))| < 1, then x is locallyasymptotically stable;
(ii) if |f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x))| > 1, then x is unstable.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 56 / 139
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1D discrete dynamical systems
Rmk: If x is a periodic point of f with minimal period k , thenddx f k (x) = f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x)) = f ′(x0) · f ′(x1) · . . . · f ′(xk−1),where we set x = x0, f (x) = x1, . . . , f k−1(x) = xk−1, i.e.,O(x) = {x , f (x), f 2(x), . . . , f k−1(x)} = O(x0) = {x0, x1, . . . , xk−1}.
Hence, the conclusions in the previous result can be equivalentlyrewritten as:
(i) if |f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x))| < 1, then the k-periodic cycleO(x) is asymptotically stable;
(ii) if |f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x))| > 1, then O(x) is unstable.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 57 / 139
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1D discrete dynamical systems
Rmk: If x is a periodic point of f with minimal period k , thenddx f k (x) = f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x)) = f ′(x0) · f ′(x1) · . . . · f ′(xk−1),where we set x = x0, f (x) = x1, . . . , f k−1(x) = xk−1, i.e.,O(x) = {x , f (x), f 2(x), . . . , f k−1(x)} = O(x0) = {x0, x1, . . . , xk−1}.
Hence, the conclusions in the previous result can be equivalentlyrewritten as:
(i) if |f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x))| < 1, then the k-periodic cycleO(x) is asymptotically stable;
(ii) if |f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x))| > 1, then O(x) is unstable.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 57 / 139
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1D discrete dynamical systems
Rmk: If x is a periodic point of f with minimal period k , thenddx f k (x) = f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x)) = f ′(x0) · f ′(x1) · . . . · f ′(xk−1),where we set x = x0, f (x) = x1, . . . , f k−1(x) = xk−1, i.e.,O(x) = {x , f (x), f 2(x), . . . , f k−1(x)} = O(x0) = {x0, x1, . . . , xk−1}.
Hence, the conclusions in the previous result can be equivalentlyrewritten as:
(i) if |f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x))| < 1, then the k-periodic cycleO(x) is asymptotically stable;
(ii) if |f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x))| > 1, then O(x) is unstable.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 57 / 139
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1D discrete dynamical systems
Rmk: If x is a periodic point of f with minimal period k , thenddx f k (x) = f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x)) = f ′(x0) · f ′(x1) · . . . · f ′(xk−1),where we set x = x0, f (x) = x1, . . . , f k−1(x) = xk−1, i.e.,O(x) = {x , f (x), f 2(x), . . . , f k−1(x)} = O(x0) = {x0, x1, . . . , xk−1}.
Hence, the conclusions in the previous result can be equivalentlyrewritten as:
(i) if |f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x))| < 1, then the k-periodic cycleO(x) is asymptotically stable;
(ii) if |f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x))| > 1, then O(x) is unstable.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 57 / 139
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1D discrete dynamical systems
Rmk: If x is a periodic point of f with minimal period k , thenddx f k (x) = f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x)) = f ′(x0) · f ′(x1) · . . . · f ′(xk−1),where we set x = x0, f (x) = x1, . . . , f k−1(x) = xk−1, i.e.,O(x) = {x , f (x), f 2(x), . . . , f k−1(x)} = O(x0) = {x0, x1, . . . , xk−1}.
Hence, the conclusions in the previous result can be equivalentlyrewritten as:
(i) if |f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x))| < 1, then the k-periodic cycleO(x) is asymptotically stable;
(ii) if |f ′(x) · f ′(f (x)) · . . . · f ′(f k−1(x))| > 1, then O(x) is unstable.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 57 / 139
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1D discrete dynamical systems
Example:Let us consider again the logistic equation
xt+1 = µxt (1− xt ), µ > 0
and the associated map f (xt ) = µxt (1− xt ), with f : [0,1]→ R.
We saw that:
x∗ = 0 is asymptotically stable for µ < 1 and unstable for µ > 1;
x∗ = 1− 1µ ∈ (0,1) for µ > 1; it is asymptotically stable for
µ ∈ (1,3) and unstable for µ ∈ (3,+∞).
What precisely happens for µ > 3?
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1D discrete dynamical systems
Example:Let us consider again the logistic equation
xt+1 = µxt (1− xt ), µ > 0
and the associated map f (xt ) = µxt (1− xt ), with f : [0,1]→ R.
We saw that:
x∗ = 0 is asymptotically stable for µ < 1 and unstable for µ > 1;
x∗ = 1− 1µ ∈ (0,1) for µ > 1; it is asymptotically stable for
µ ∈ (1,3) and unstable for µ ∈ (3,+∞).
What precisely happens for µ > 3?
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1D discrete dynamical systems
Example:Let us consider again the logistic equation
xt+1 = µxt (1− xt ), µ > 0
and the associated map f (xt ) = µxt (1− xt ), with f : [0,1]→ R.
We saw that:
x∗ = 0 is asymptotically stable for µ < 1 and unstable for µ > 1;
x∗ = 1− 1µ ∈ (0,1) for µ > 1; it is asymptotically stable for
µ ∈ (1,3) and unstable for µ ∈ (3,+∞).
What precisely happens for µ > 3?
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 58 / 139
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1D discrete dynamical systems
Example:Let us consider again the logistic equation
xt+1 = µxt (1− xt ), µ > 0
and the associated map f (xt ) = µxt (1− xt ), with f : [0,1]→ R.
We saw that:
x∗ = 0 is asymptotically stable for µ < 1 and unstable for µ > 1;
x∗ = 1− 1µ ∈ (0,1) for µ > 1; it is asymptotically stable for
µ ∈ (1,3) and unstable for µ ∈ (3,+∞).
What precisely happens for µ > 3?
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 58 / 139
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1D discrete dynamical systems
Example:Let us consider again the logistic equation
xt+1 = µxt (1− xt ), µ > 0
and the associated map f (xt ) = µxt (1− xt ), with f : [0,1]→ R.
We saw that:
x∗ = 0 is asymptotically stable for µ < 1 and unstable for µ > 1;
x∗ = 1− 1µ ∈ (0,1) for µ > 1; it is asymptotically stable for
µ ∈ (1,3) and unstable for µ ∈ (3,+∞).
What precisely happens for µ > 3?
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 58 / 139
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1D discrete dynamical systems
Computing f 2(x) = x , we find µ2x(1− x) (1− µx(1− x)) = x .
Discarding the already known solution x∗ = 0, we have to solveµ2(1− x) (1− µx(1− x)) = 1, i.e., x3 − 2x2 + x
(1 + 1
µ
)− 1
µ + 1µ3 = 0.
Knowing that x∗ = 1− 1µ is a solution of such equation, we can use the
polynomial long division to obtain the following factorization:
x3 − 2x2 + x(
1 +1µ
)− 1µ
+1µ3 =
=
(x − 1 +
1µ
)(x2 − x
(1 +
1µ
)+
1µ
(1 +
1µ
)).
The solutions to x2 − x(
1 + 1µ
)+ 1
µ
(1 + 1
µ
)= 0 are given by
x1,2 = 12
(1 + 1
µ ±√
1− 2µ −
3µ2
), which are real and distinct for µ > 3.
Hence, for µ = 3 the period-two cycle {x1, x2} arises.
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1D discrete dynamical systems
Computing f 2(x) = x , we find µ2x(1− x) (1− µx(1− x)) = x .
Discarding the already known solution x∗ = 0, we have to solveµ2(1− x) (1− µx(1− x)) = 1, i.e., x3 − 2x2 + x
(1 + 1
µ
)− 1
µ + 1µ3 = 0.
Knowing that x∗ = 1− 1µ is a solution of such equation, we can use the
polynomial long division to obtain the following factorization:
x3 − 2x2 + x(
1 +1µ
)− 1µ
+1µ3 =
=
(x − 1 +
1µ
)(x2 − x
(1 +
1µ
)+
1µ
(1 +
1µ
)).
The solutions to x2 − x(
1 + 1µ
)+ 1
µ
(1 + 1
µ
)= 0 are given by
x1,2 = 12
(1 + 1
µ ±√
1− 2µ −
3µ2
), which are real and distinct for µ > 3.
Hence, for µ = 3 the period-two cycle {x1, x2} arises.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 59 / 139
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1D discrete dynamical systems
Computing f 2(x) = x , we find µ2x(1− x) (1− µx(1− x)) = x .
Discarding the already known solution x∗ = 0, we have to solveµ2(1− x) (1− µx(1− x)) = 1, i.e., x3 − 2x2 + x
(1 + 1
µ
)− 1
µ + 1µ3 = 0.
Knowing that x∗ = 1− 1µ is a solution of such equation, we can use the
polynomial long division to obtain the following factorization:
x3 − 2x2 + x(
1 +1µ
)− 1µ
+1µ3 =
=
(x − 1 +
1µ
)(x2 − x
(1 +
1µ
)+
1µ
(1 +
1µ
)).
The solutions to x2 − x(
1 + 1µ
)+ 1
µ
(1 + 1
µ
)= 0 are given by
x1,2 = 12
(1 + 1
µ ±√
1− 2µ −
3µ2
), which are real and distinct for µ > 3.
Hence, for µ = 3 the period-two cycle {x1, x2} arises.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 59 / 139
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1D discrete dynamical systems
Computing f 2(x) = x , we find µ2x(1− x) (1− µx(1− x)) = x .
Discarding the already known solution x∗ = 0, we have to solveµ2(1− x) (1− µx(1− x)) = 1, i.e., x3 − 2x2 + x
(1 + 1
µ
)− 1
µ + 1µ3 = 0.
Knowing that x∗ = 1− 1µ is a solution of such equation, we can use the
polynomial long division to obtain the following factorization:
x3 − 2x2 + x(
1 +1µ
)− 1µ
+1µ3 =
=
(x − 1 +
1µ
)(x2 − x
(1 +
1µ
)+
1µ
(1 +
1µ
)).
The solutions to x2 − x(
1 + 1µ
)+ 1
µ
(1 + 1
µ
)= 0 are given by
x1,2 = 12
(1 + 1
µ ±√
1− 2µ −
3µ2
), which are real and distinct for µ > 3.
Hence, for µ = 3 the period-two cycle {x1, x2} arises.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 59 / 139
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1D discrete dynamical systems
Computing f 2(x) = x , we find µ2x(1− x) (1− µx(1− x)) = x .
Discarding the already known solution x∗ = 0, we have to solveµ2(1− x) (1− µx(1− x)) = 1, i.e., x3 − 2x2 + x
(1 + 1
µ
)− 1
µ + 1µ3 = 0.
Knowing that x∗ = 1− 1µ is a solution of such equation, we can use the
polynomial long division to obtain the following factorization:
x3 − 2x2 + x(
1 +1µ
)− 1µ
+1µ3 =
=
(x − 1 +
1µ
)(x2 − x
(1 +
1µ
)+
1µ
(1 +
1µ
)).
The solutions to x2 − x(
1 + 1µ
)+ 1
µ
(1 + 1
µ
)= 0 are given by
x1,2 = 12
(1 + 1
µ ±√
1− 2µ −
3µ2
), which are real and distinct for µ > 3.
Hence, for µ = 3 the period-two cycle {x1, x2} arises.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 59 / 139
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1D discrete dynamical systems
To investigate its stability, we have to solve |f ′(x1) · f ′(x2)| < 1.
Since f ′(x) = µ(1− 2x), we simply find|f ′(x1) · f ′(x2)| = |µ2(1− 2x1)(1− 2x2)| = | − µ2 + 2µ+ 4| < 1, which isfulfilled for µ ∈
(3,1 +
√6)≈ (3,3.449).
Thus, the period-two cycle {x1, x2} is asymptotically stable forµ ∈ (3,3.449) and unstable for µ > 3.449.
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1D discrete dynamical systems
To investigate its stability, we have to solve |f ′(x1) · f ′(x2)| < 1.
Since f ′(x) = µ(1− 2x), we simply find|f ′(x1) · f ′(x2)| = |µ2(1− 2x1)(1− 2x2)| = | − µ2 + 2µ+ 4| < 1, which isfulfilled for µ ∈
(3,1 +
√6)≈ (3,3.449).
Thus, the period-two cycle {x1, x2} is asymptotically stable forµ ∈ (3,3.449) and unstable for µ > 3.449.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 60 / 139
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1D discrete dynamical systems
To investigate its stability, we have to solve |f ′(x1) · f ′(x2)| < 1.
Since f ′(x) = µ(1− 2x), we simply find|f ′(x1) · f ′(x2)| = |µ2(1− 2x1)(1− 2x2)| = | − µ2 + 2µ+ 4| < 1, which isfulfilled for µ ∈
(3,1 +
√6)≈ (3,3.449).
Thus, the period-two cycle {x1, x2} is asymptotically stable forµ ∈ (3,3.449) and unstable for µ > 3.449.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 60 / 139
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1D discrete dynamical systems
First iterate of f for µ = 3.4
The period-two cycle {x1, x2} is asymptotically stable.
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1D discrete dynamical systems
First iterate of f for µ = 3.4
The period-two cycle {x1, x2} is asymptotically stable.
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1D discrete dynamical systems
(A) (B)Second iterate of f for µ = 3.4
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1D discrete dynamical systems
Third iterate of f for µ = 3.4
The period-three cycle does not exist yet for µ = 3.4.
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1D discrete dynamical systems
Third iterate of f for µ = 3.4
The period-three cycle does not exist yet for µ = 3.4.
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1D discrete dynamical systems
Before the emergence of the period-three cycle for µ = 3.8284, alleven-period cycles emerge. Why?
As we shall see, the answer is given by the Sharkovsky theorem.
But let us first look at the bifurcation diagram of the system.
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1D discrete dynamical systems
Before the emergence of the period-three cycle for µ = 3.8284, alleven-period cycles emerge. Why?
As we shall see, the answer is given by the Sharkovsky theorem.
But let us first look at the bifurcation diagram of the system.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 64 / 139
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1D discrete dynamical systems
Before the emergence of the period-three cycle for µ = 3.8284, alleven-period cycles emerge. Why?
As we shall see, the answer is given by the Sharkovsky theorem.
But let us first look at the bifurcation diagram of the system.
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1D discrete dynamical systems
Bifurcation diagrams
The behavior of some systems suddenly changes in a dramaticmanner at certain parameter values.
This led to the study of bifurcation theory.
The parameter values at which the system’s behavior changes arecalled bifurcation values.
Let us consider
xt+1 = f (xt ;µ) = fµ(xt ),
where f is a nonlinear function depending also on the parameter µ ∈ R.
For instance, we may consider the logistic map fµ(xt ) = µxt (1− xt ),with fµ : [0,1]→ R.
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1D discrete dynamical systems
Bifurcation diagrams
The behavior of some systems suddenly changes in a dramaticmanner at certain parameter values.
This led to the study of bifurcation theory.
The parameter values at which the system’s behavior changes arecalled bifurcation values.
Let us consider
xt+1 = f (xt ;µ) = fµ(xt ),
where f is a nonlinear function depending also on the parameter µ ∈ R.
For instance, we may consider the logistic map fµ(xt ) = µxt (1− xt ),with fµ : [0,1]→ R.
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1D discrete dynamical systems
Bifurcation diagrams
The behavior of some systems suddenly changes in a dramaticmanner at certain parameter values.
This led to the study of bifurcation theory.
The parameter values at which the system’s behavior changes arecalled bifurcation values.
Let us consider
xt+1 = f (xt ;µ) = fµ(xt ),
where f is a nonlinear function depending also on the parameter µ ∈ R.
For instance, we may consider the logistic map fµ(xt ) = µxt (1− xt ),with fµ : [0,1]→ R.
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1D discrete dynamical systems
Bifurcation diagrams
The behavior of some systems suddenly changes in a dramaticmanner at certain parameter values.
This led to the study of bifurcation theory.
The parameter values at which the system’s behavior changes arecalled bifurcation values.
Let us consider
xt+1 = f (xt ;µ) = fµ(xt ),
where f is a nonlinear function depending also on the parameter µ ∈ R.
For instance, we may consider the logistic map fµ(xt ) = µxt (1− xt ),with fµ : [0,1]→ R.
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1D discrete dynamical systems
Bifurcation diagrams
The behavior of some systems suddenly changes in a dramaticmanner at certain parameter values.
This led to the study of bifurcation theory.
The parameter values at which the system’s behavior changes arecalled bifurcation values.
Let us consider
xt+1 = f (xt ;µ) = fµ(xt ),
where f is a nonlinear function depending also on the parameter µ ∈ R.
For instance, we may consider the logistic map fµ(xt ) = µxt (1− xt ),with fµ : [0,1]→ R.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 65 / 139
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1D discrete dynamical systems
Bifurcation diagrams
The behavior of some systems suddenly changes in a dramaticmanner at certain parameter values.
This led to the study of bifurcation theory.
The parameter values at which the system’s behavior changes arecalled bifurcation values.
Let us consider
xt+1 = f (xt ;µ) = fµ(xt ),
where f is a nonlinear function depending also on the parameter µ ∈ R.
For instance, we may consider the logistic map fµ(xt ) = µxt (1− xt ),with fµ : [0,1]→ R.
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1D discrete dynamical systems
For certain values of the parameter µ the system settles down to aperiodic cycle.
However, for the remaining values of µ the system is irregular orchaotic.
Bifurcation diagrams are very useful in showing the occurrence ofchaotic behavior of dynamical systems.
In the bifurcation diagrams we plot the relationship between theparameter values and the stable equilibrium points (or the attractors) ofthe system.
The horizontal axis represents the parameter µ and the vertical axisrepresents suitable forward iterates f n
µ (x0) of a certain initial point x0.
If the considered ns are large enough, the diagram will show thelimiting behavior of the orbit of x0.
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1D discrete dynamical systems
For certain values of the parameter µ the system settles down to aperiodic cycle.
However, for the remaining values of µ the system is irregular orchaotic.
Bifurcation diagrams are very useful in showing the occurrence ofchaotic behavior of dynamical systems.
In the bifurcation diagrams we plot the relationship between theparameter values and the stable equilibrium points (or the attractors) ofthe system.
The horizontal axis represents the parameter µ and the vertical axisrepresents suitable forward iterates f n
µ (x0) of a certain initial point x0.
If the considered ns are large enough, the diagram will show thelimiting behavior of the orbit of x0.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 66 / 139
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1D discrete dynamical systems
For certain values of the parameter µ the system settles down to aperiodic cycle.
However, for the remaining values of µ the system is irregular orchaotic.
Bifurcation diagrams are very useful in showing the occurrence ofchaotic behavior of dynamical systems.
In the bifurcation diagrams we plot the relationship between theparameter values and the stable equilibrium points (or the attractors) ofthe system.
The horizontal axis represents the parameter µ and the vertical axisrepresents suitable forward iterates f n
µ (x0) of a certain initial point x0.
If the considered ns are large enough, the diagram will show thelimiting behavior of the orbit of x0.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 66 / 139
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1D discrete dynamical systems
For certain values of the parameter µ the system settles down to aperiodic cycle.
However, for the remaining values of µ the system is irregular orchaotic.
Bifurcation diagrams are very useful in showing the occurrence ofchaotic behavior of dynamical systems.
In the bifurcation diagrams we plot the relationship between theparameter values and the stable equilibrium points (or the attractors) ofthe system.
The horizontal axis represents the parameter µ and the vertical axisrepresents suitable forward iterates f n
µ (x0) of a certain initial point x0.
If the considered ns are large enough, the diagram will show thelimiting behavior of the orbit of x0.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 66 / 139
![Page 191: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/191.jpg)
1D discrete dynamical systems
For certain values of the parameter µ the system settles down to aperiodic cycle.
However, for the remaining values of µ the system is irregular orchaotic.
Bifurcation diagrams are very useful in showing the occurrence ofchaotic behavior of dynamical systems.
In the bifurcation diagrams we plot the relationship between theparameter values and the stable equilibrium points (or the attractors) ofthe system.
The horizontal axis represents the parameter µ and the vertical axisrepresents suitable forward iterates f n
µ (x0) of a certain initial point x0.
If the considered ns are large enough, the diagram will show thelimiting behavior of the orbit of x0.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 66 / 139
![Page 192: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/192.jpg)
1D discrete dynamical systems
For certain values of the parameter µ the system settles down to aperiodic cycle.
However, for the remaining values of µ the system is irregular orchaotic.
Bifurcation diagrams are very useful in showing the occurrence ofchaotic behavior of dynamical systems.
In the bifurcation diagrams we plot the relationship between theparameter values and the stable equilibrium points (or the attractors) ofthe system.
The horizontal axis represents the parameter µ and the vertical axisrepresents suitable forward iterates f n
µ (x0) of a certain initial point x0.
If the considered ns are large enough, the diagram will show thelimiting behavior of the orbit of x0.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 66 / 139
![Page 193: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/193.jpg)
1D discrete dynamical systems
The computer-generated bifurcation diagram is obtained by thefollowing procedure:
0) Fix a suitable interval [µ1, µ2] for the parameter values.
1) Choose an initial value x0 from the domain of f and iterate, say,500 times to find
x0, fµ(x0), f 2µ (x0), . . . , f 500
µ (x0).
2) Drop the first, say, 400 iterations x0, fµ(x0), . . . , f 400µ (x0) and plot
the iterations f 401µ (x0), . . . , f 500
µ (x0) in the bifurcation diagram.
3) The procedure in 1)-2) is repeated for several values ofµ ∈ [µ1, µ2], usually taking increments of 1/100.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 67 / 139
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1D discrete dynamical systems
The computer-generated bifurcation diagram is obtained by thefollowing procedure:
0) Fix a suitable interval [µ1, µ2] for the parameter values.
1) Choose an initial value x0 from the domain of f and iterate, say,500 times to find
x0, fµ(x0), f 2µ (x0), . . . , f 500
µ (x0).
2) Drop the first, say, 400 iterations x0, fµ(x0), . . . , f 400µ (x0) and plot
the iterations f 401µ (x0), . . . , f 500
µ (x0) in the bifurcation diagram.
3) The procedure in 1)-2) is repeated for several values ofµ ∈ [µ1, µ2], usually taking increments of 1/100.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 67 / 139
![Page 195: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/195.jpg)
1D discrete dynamical systems
The computer-generated bifurcation diagram is obtained by thefollowing procedure:
0) Fix a suitable interval [µ1, µ2] for the parameter values.
1) Choose an initial value x0 from the domain of f and iterate, say,500 times to find
x0, fµ(x0), f 2µ (x0), . . . , f 500
µ (x0).
2) Drop the first, say, 400 iterations x0, fµ(x0), . . . , f 400µ (x0) and plot
the iterations f 401µ (x0), . . . , f 500
µ (x0) in the bifurcation diagram.
3) The procedure in 1)-2) is repeated for several values ofµ ∈ [µ1, µ2], usually taking increments of 1/100.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 67 / 139
![Page 196: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/196.jpg)
1D discrete dynamical systems
The computer-generated bifurcation diagram is obtained by thefollowing procedure:
0) Fix a suitable interval [µ1, µ2] for the parameter values.
1) Choose an initial value x0 from the domain of f and iterate, say,500 times to find
x0, fµ(x0), f 2µ (x0), . . . , f 500
µ (x0).
2) Drop the first, say, 400 iterations x0, fµ(x0), . . . , f 400µ (x0) and plot
the iterations f 401µ (x0), . . . , f 500
µ (x0) in the bifurcation diagram.
3) The procedure in 1)-2) is repeated for several values ofµ ∈ [µ1, µ2], usually taking increments of 1/100.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 67 / 139
![Page 197: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/197.jpg)
1D discrete dynamical systems
The computer-generated bifurcation diagram is obtained by thefollowing procedure:
0) Fix a suitable interval [µ1, µ2] for the parameter values.
1) Choose an initial value x0 from the domain of f and iterate, say,500 times to find
x0, fµ(x0), f 2µ (x0), . . . , f 500
µ (x0).
2) Drop the first, say, 400 iterations x0, fµ(x0), . . . , f 400µ (x0) and plot
the iterations f 401µ (x0), . . . , f 500
µ (x0) in the bifurcation diagram.
3) The procedure in 1)-2) is repeated for several values ofµ ∈ [µ1, µ2], usually taking increments of 1/100.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 67 / 139
![Page 198: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/198.jpg)
1D discrete dynamical systems
Focusing on the logistic map fµ(xt ) = µxt (1− xt ), with fµ : [0,1]→ R, inorder to have fµ([0,1]) ⊆ [0,1], we need 0 ≤ µ ≤ 4.
Indeed, fµ(1/2) = µ/4 ≤ 1⇔ µ ≤ 4.
Let us then consider [µ1, µ2] = [0,4] and choose, e.g., x0 = 0.5.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 68 / 139
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1D discrete dynamical systems
Focusing on the logistic map fµ(xt ) = µxt (1− xt ), with fµ : [0,1]→ R, inorder to have fµ([0,1]) ⊆ [0,1], we need 0 ≤ µ ≤ 4.
Indeed, fµ(1/2) = µ/4 ≤ 1⇔ µ ≤ 4.
Let us then consider [µ1, µ2] = [0,4] and choose, e.g., x0 = 0.5.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 68 / 139
![Page 200: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/200.jpg)
1D discrete dynamical systems
Focusing on the logistic map fµ(xt ) = µxt (1− xt ), with fµ : [0,1]→ R, inorder to have fµ([0,1]) ⊆ [0,1], we need 0 ≤ µ ≤ 4.
Indeed, fµ(1/2) = µ/4 ≤ 1⇔ µ ≤ 4.
Let us then consider [µ1, µ2] = [0,4] and choose, e.g., x0 = 0.5.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 68 / 139
![Page 201: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/201.jpg)
1D discrete dynamical systems
Bifurcation diagram of fµ for µ ∈ [0,4] and x0 = 0.5
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 69 / 139
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1D discrete dynamical systems
We saw that:
x∗ = 0 is asymptotically stable for µ < 1 and unstable for µ > 1.x∗ = 1− 1
µ is asymptotically stable for µ ∈ (1,3).
For µ = 3, x∗ = 1− 1µ becomes unstable but it gives rise to two
stable solutions {x1, x2} to f 2(x) = x , which form anasymptotically stable period-two cycle for f ⇒for µ = 3 a period-doubling bifurcation occurs for f at x∗ = 1− 1
µ .
The period-two cycle {x1, x2}, with x1,2 = 12 + 1
2µ ±12
√1− 2
µ −3µ2 ,
is asymptotically stable for µ ∈ (3,3.449).
For µ = 3.449, both x1 and x1 become unstable but each of themgives rise to two stable solutions to f 4(x) = x , which form anasymptotically stable period-four cycle for f ⇒for µ = 3.449 a double period-doubling bifurcation occurs for f 2 atx = x1 and x = x2.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 70 / 139
![Page 203: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/203.jpg)
1D discrete dynamical systems
We saw that:
x∗ = 0 is asymptotically stable for µ < 1 and unstable for µ > 1.x∗ = 1− 1
µ is asymptotically stable for µ ∈ (1,3).
For µ = 3, x∗ = 1− 1µ becomes unstable but it gives rise to two
stable solutions {x1, x2} to f 2(x) = x , which form anasymptotically stable period-two cycle for f ⇒for µ = 3 a period-doubling bifurcation occurs for f at x∗ = 1− 1
µ .
The period-two cycle {x1, x2}, with x1,2 = 12 + 1
2µ ±12
√1− 2
µ −3µ2 ,
is asymptotically stable for µ ∈ (3,3.449).
For µ = 3.449, both x1 and x1 become unstable but each of themgives rise to two stable solutions to f 4(x) = x , which form anasymptotically stable period-four cycle for f ⇒for µ = 3.449 a double period-doubling bifurcation occurs for f 2 atx = x1 and x = x2.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 70 / 139
![Page 204: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/204.jpg)
1D discrete dynamical systems
We saw that:
x∗ = 0 is asymptotically stable for µ < 1 and unstable for µ > 1.x∗ = 1− 1
µ is asymptotically stable for µ ∈ (1,3).
For µ = 3, x∗ = 1− 1µ becomes unstable but it gives rise to two
stable solutions {x1, x2} to f 2(x) = x , which form anasymptotically stable period-two cycle for f ⇒for µ = 3 a period-doubling bifurcation occurs for f at x∗ = 1− 1
µ .
The period-two cycle {x1, x2}, with x1,2 = 12 + 1
2µ ±12
√1− 2
µ −3µ2 ,
is asymptotically stable for µ ∈ (3,3.449).
For µ = 3.449, both x1 and x1 become unstable but each of themgives rise to two stable solutions to f 4(x) = x , which form anasymptotically stable period-four cycle for f ⇒for µ = 3.449 a double period-doubling bifurcation occurs for f 2 atx = x1 and x = x2.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 70 / 139
![Page 205: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/205.jpg)
1D discrete dynamical systems
We saw that:
x∗ = 0 is asymptotically stable for µ < 1 and unstable for µ > 1.x∗ = 1− 1
µ is asymptotically stable for µ ∈ (1,3).
For µ = 3, x∗ = 1− 1µ becomes unstable but it gives rise to two
stable solutions {x1, x2} to f 2(x) = x , which form anasymptotically stable period-two cycle for f ⇒for µ = 3 a period-doubling bifurcation occurs for f at x∗ = 1− 1
µ .
The period-two cycle {x1, x2}, with x1,2 = 12 + 1
2µ ±12
√1− 2
µ −3µ2 ,
is asymptotically stable for µ ∈ (3,3.449).
For µ = 3.449, both x1 and x1 become unstable but each of themgives rise to two stable solutions to f 4(x) = x , which form anasymptotically stable period-four cycle for f ⇒for µ = 3.449 a double period-doubling bifurcation occurs for f 2 atx = x1 and x = x2.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 70 / 139
![Page 206: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/206.jpg)
1D discrete dynamical systems
We saw that:
x∗ = 0 is asymptotically stable for µ < 1 and unstable for µ > 1.x∗ = 1− 1
µ is asymptotically stable for µ ∈ (1,3).
For µ = 3, x∗ = 1− 1µ becomes unstable but it gives rise to two
stable solutions {x1, x2} to f 2(x) = x , which form anasymptotically stable period-two cycle for f ⇒for µ = 3 a period-doubling bifurcation occurs for f at x∗ = 1− 1
µ .
The period-two cycle {x1, x2}, with x1,2 = 12 + 1
2µ ±12
√1− 2
µ −3µ2 ,
is asymptotically stable for µ ∈ (3,3.449).
For µ = 3.449, both x1 and x1 become unstable but each of themgives rise to two stable solutions to f 4(x) = x , which form anasymptotically stable period-four cycle for f ⇒for µ = 3.449 a double period-doubling bifurcation occurs for f 2 atx = x1 and x = x2.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 70 / 139
![Page 207: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/207.jpg)
1D discrete dynamical systems
We saw that:
x∗ = 0 is asymptotically stable for µ < 1 and unstable for µ > 1.x∗ = 1− 1
µ is asymptotically stable for µ ∈ (1,3).
For µ = 3, x∗ = 1− 1µ becomes unstable but it gives rise to two
stable solutions {x1, x2} to f 2(x) = x , which form anasymptotically stable period-two cycle for f ⇒for µ = 3 a period-doubling bifurcation occurs for f at x∗ = 1− 1
µ .
The period-two cycle {x1, x2}, with x1,2 = 12 + 1
2µ ±12
√1− 2
µ −3µ2 ,
is asymptotically stable for µ ∈ (3,3.449).
For µ = 3.449, both x1 and x1 become unstable but each of themgives rise to two stable solutions to f 4(x) = x , which form anasymptotically stable period-four cycle for f ⇒for µ = 3.449 a double period-doubling bifurcation occurs for f 2 atx = x1 and x = x2.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 70 / 139
![Page 208: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/208.jpg)
1D discrete dynamical systems
We saw that:
x∗ = 0 is asymptotically stable for µ < 1 and unstable for µ > 1.x∗ = 1− 1
µ is asymptotically stable for µ ∈ (1,3).
For µ = 3, x∗ = 1− 1µ becomes unstable but it gives rise to two
stable solutions {x1, x2} to f 2(x) = x , which form anasymptotically stable period-two cycle for f ⇒for µ = 3 a period-doubling bifurcation occurs for f at x∗ = 1− 1
µ .
The period-two cycle {x1, x2}, with x1,2 = 12 + 1
2µ ±12
√1− 2
µ −3µ2 ,
is asymptotically stable for µ ∈ (3,3.449).
For µ = 3.449, both x1 and x1 become unstable but each of themgives rise to two stable solutions to f 4(x) = x , which form anasymptotically stable period-four cycle for f ⇒for µ = 3.449 a double period-doubling bifurcation occurs for f 2 atx = x1 and x = x2.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 70 / 139
![Page 209: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/209.jpg)
1D discrete dynamical systems
We saw that:
x∗ = 0 is asymptotically stable for µ < 1 and unstable for µ > 1.x∗ = 1− 1
µ is asymptotically stable for µ ∈ (1,3).
For µ = 3, x∗ = 1− 1µ becomes unstable but it gives rise to two
stable solutions {x1, x2} to f 2(x) = x , which form anasymptotically stable period-two cycle for f ⇒for µ = 3 a period-doubling bifurcation occurs for f at x∗ = 1− 1
µ .
The period-two cycle {x1, x2}, with x1,2 = 12 + 1
2µ ±12
√1− 2
µ −3µ2 ,
is asymptotically stable for µ ∈ (3,3.449).
For µ = 3.449, both x1 and x1 become unstable but each of themgives rise to two stable solutions to f 4(x) = x , which form anasymptotically stable period-four cycle for f ⇒for µ = 3.449 a double period-doubling bifurcation occurs for f 2 atx = x1 and x = x2.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 70 / 139
![Page 210: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/210.jpg)
1D discrete dynamical systems
What happens next?
Period-doubling bifurcations (leading from a stable period-four cycle toa stable period-eight cycle; from a stable period-eight cycle to a stableperiod-sixteen cycle, and so on) occur until µ ≈ 3.57.
After this value, the system starts exhibiting aperiodic or chaoticbehavior, i.e., behavior that, although generated by a deterministicsystem, has all the characteristics of randomness.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 71 / 139
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1D discrete dynamical systems
What happens next?
Period-doubling bifurcations (leading from a stable period-four cycle toa stable period-eight cycle; from a stable period-eight cycle to a stableperiod-sixteen cycle, and so on) occur until µ ≈ 3.57.
After this value, the system starts exhibiting aperiodic or chaoticbehavior, i.e., behavior that, although generated by a deterministicsystem, has all the characteristics of randomness.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 71 / 139
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1D discrete dynamical systems
What happens next?
Period-doubling bifurcations (leading from a stable period-four cycle toa stable period-eight cycle; from a stable period-eight cycle to a stableperiod-sixteen cycle, and so on) occur until µ ≈ 3.57.
After this value, the system starts exhibiting aperiodic or chaoticbehavior, i.e., behavior that, although generated by a deterministicsystem, has all the characteristics of randomness.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 71 / 139
![Page 213: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/213.jpg)
1D discrete dynamical systems
Chaotic attractor of fµ for µ = 3.65 and x0 = 0.5
For instance, we have sensitive dependence on initial conditions andthus predictions become virtually impossible.Indeed, given arbitrarily small differences in initial conditions, then thesystem will after time behave very differently.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 72 / 139
![Page 214: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/214.jpg)
1D discrete dynamical systems
Chaotic attractor of fµ for µ = 3.65 and x0 = 0.5
For instance, we have sensitive dependence on initial conditions andthus predictions become virtually impossible.Indeed, given arbitrarily small differences in initial conditions, then thesystem will after time behave very differently.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 72 / 139
![Page 215: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/215.jpg)
1D discrete dynamical systems
Chaotic attractor of fµ for µ = 3.65 and x0 = 0.5
For instance, we have sensitive dependence on initial conditions andthus predictions become virtually impossible.Indeed, given arbitrarily small differences in initial conditions, then thesystem will after time behave very differently.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 72 / 139
![Page 216: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/216.jpg)
1D discrete dynamical systems
Time series of fµ for µ = 3.65, T = 40, and x0 = 0.1 in blue, x0 = 0.15in green
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 73 / 139
![Page 217: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/217.jpg)
1D discrete dynamical systems
Bifurcation diagram of fµ for µ ∈ [3.4,4] and x0 = 0.5
The chaotic (dark) region occurring for µ ∈ [3.57,4] is interrupted bysome periodicity windows.In the first window (for µ ≈ 3.62) a period-six cycle emerges;in the second window (for µ ≈ 3.74) a period-five cycle emerges;in the third window (for µ ≈ 3.83) a period-three cycle emerges.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 74 / 139
![Page 218: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/218.jpg)
1D discrete dynamical systems
Bifurcation diagram of fµ for µ ∈ [3.4,4] and x0 = 0.5
The chaotic (dark) region occurring for µ ∈ [3.57,4] is interrupted bysome periodicity windows.In the first window (for µ ≈ 3.62) a period-six cycle emerges;in the second window (for µ ≈ 3.74) a period-five cycle emerges;in the third window (for µ ≈ 3.83) a period-three cycle emerges.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 74 / 139
![Page 219: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/219.jpg)
1D discrete dynamical systems
Bifurcation diagram of fµ for µ ∈ [3.4,4] and x0 = 0.5
The chaotic (dark) region occurring for µ ∈ [3.57,4] is interrupted bysome periodicity windows.In the first window (for µ ≈ 3.62) a period-six cycle emerges;in the second window (for µ ≈ 3.74) a period-five cycle emerges;in the third window (for µ ≈ 3.83) a period-three cycle emerges.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 74 / 139
![Page 220: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/220.jpg)
1D discrete dynamical systems
Bifurcation diagram of fµ for µ ∈ [3.4,4] and x0 = 0.5
The chaotic (dark) region occurring for µ ∈ [3.57,4] is interrupted bysome periodicity windows.In the first window (for µ ≈ 3.62) a period-six cycle emerges;in the second window (for µ ≈ 3.74) a period-five cycle emerges;in the third window (for µ ≈ 3.83) a period-three cycle emerges.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 74 / 139
![Page 221: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/221.jpg)
1D discrete dynamical systems
Bifurcation diagram of fµ for µ ∈ [3.4,4] and x0 = 0.5
The chaotic (dark) region occurring for µ ∈ [3.57,4] is interrupted bysome periodicity windows.In the first window (for µ ≈ 3.62) a period-six cycle emerges;in the second window (for µ ≈ 3.74) a period-five cycle emerges;in the third window (for µ ≈ 3.83) a period-three cycle emerges.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 74 / 139
![Page 222: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/222.jpg)
1D discrete dynamical systems
Bifurcation diagrams can be easily generated using E&F Chaossoftware, available at:
http://cendef.uva.nl/software/ef-chaos/ef-chaos.html
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 75 / 139
![Page 223: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/223.jpg)
1D discrete dynamical systems
Sharkovsky theorem
Why do periodicity windows emerge in that order?
Let us define the Sharkovsky ordering asS0 � S1 � S2 � · · · � Sk � · · · � 24 � 23 � 22 � 2 � 1
where a � b means “a precedes b in the Sharkovsky ordering” and
S0 3 � 5 � 7 � . . . odd numbers (except 1)S1 2 · 3 � 2 · 5 � 2 · 7 � . . . 2·odd numbersS2 22 · 3 � 22 · 5 � 22 · 7 � . . . 22·odd numbers
...Sk 2k · 3 � 2k · 5 � 2k · 7 � . . . 2k ·odd numbers−− · · · � 24 � 23 � 22 � 2 � 1 Powers of 2 in descending order
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 76 / 139
![Page 224: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/224.jpg)
1D discrete dynamical systems
Sharkovsky theorem
Why do periodicity windows emerge in that order?
Let us define the Sharkovsky ordering asS0 � S1 � S2 � · · · � Sk � · · · � 24 � 23 � 22 � 2 � 1
where a � b means “a precedes b in the Sharkovsky ordering” and
S0 3 � 5 � 7 � . . . odd numbers (except 1)S1 2 · 3 � 2 · 5 � 2 · 7 � . . . 2·odd numbersS2 22 · 3 � 22 · 5 � 22 · 7 � . . . 22·odd numbers
...Sk 2k · 3 � 2k · 5 � 2k · 7 � . . . 2k ·odd numbers−− · · · � 24 � 23 � 22 � 2 � 1 Powers of 2 in descending order
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 76 / 139
![Page 225: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/225.jpg)
1D discrete dynamical systems
Sharkovsky theorem
Why do periodicity windows emerge in that order?
Let us define the Sharkovsky ordering asS0 � S1 � S2 � · · · � Sk � · · · � 24 � 23 � 22 � 2 � 1
where a � b means “a precedes b in the Sharkovsky ordering” and
S0 3 � 5 � 7 � . . . odd numbers (except 1)S1 2 · 3 � 2 · 5 � 2 · 7 � . . . 2·odd numbersS2 22 · 3 � 22 · 5 � 22 · 7 � . . . 22·odd numbers
...Sk 2k · 3 � 2k · 5 � 2k · 7 � . . . 2k ·odd numbers−− · · · � 24 � 23 � 22 � 2 � 1 Powers of 2 in descending order
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 76 / 139
![Page 226: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/226.jpg)
1D discrete dynamical systems
Sharkovsky theorem
Why do periodicity windows emerge in that order?
Let us define the Sharkovsky ordering asS0 � S1 � S2 � · · · � Sk � · · · � 24 � 23 � 22 � 2 � 1
where a � b means “a precedes b in the Sharkovsky ordering” and
S0 3 � 5 � 7 � . . . odd numbers (except 1)S1 2 · 3 � 2 · 5 � 2 · 7 � . . . 2·odd numbersS2 22 · 3 � 22 · 5 � 22 · 7 � . . . 22·odd numbers
...Sk 2k · 3 � 2k · 5 � 2k · 7 � . . . 2k ·odd numbers−− · · · � 24 � 23 � 22 � 2 � 1 Powers of 2 in descending order
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 76 / 139
![Page 227: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/227.jpg)
1D discrete dynamical systems
Sharkovsky theorem
Why do periodicity windows emerge in that order?
Let us define the Sharkovsky ordering asS0 � S1 � S2 � · · · � Sk � · · · � 24 � 23 � 22 � 2 � 1
where a � b means “a precedes b in the Sharkovsky ordering” and
S0 3 � 5 � 7 � . . . odd numbers (except 1)S1 2 · 3 � 2 · 5 � 2 · 7 � . . . 2·odd numbersS2 22 · 3 � 22 · 5 � 22 · 7 � . . . 22·odd numbers
...Sk 2k · 3 � 2k · 5 � 2k · 7 � . . . 2k ·odd numbers−− · · · � 24 � 23 � 22 � 2 � 1 Powers of 2 in descending order
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 76 / 139
![Page 228: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/228.jpg)
1D discrete dynamical systems
Sharkovsky theorem
Why do periodicity windows emerge in that order?
Let us define the Sharkovsky ordering asS0 � S1 � S2 � · · · � Sk � · · · � 24 � 23 � 22 � 2 � 1
where a � b means “a precedes b in the Sharkovsky ordering” and
S0 3 � 5 � 7 � . . . odd numbers (except 1)S1 2 · 3 � 2 · 5 � 2 · 7 � . . . 2·odd numbersS2 22 · 3 � 22 · 5 � 22 · 7 � . . . 22·odd numbers
...Sk 2k · 3 � 2k · 5 � 2k · 7 � . . . 2k ·odd numbers−− · · · � 24 � 23 � 22 � 2 � 1 Powers of 2 in descending order
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 76 / 139
![Page 229: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/229.jpg)
1D discrete dynamical systems
Sharkovsky theorem
Why do periodicity windows emerge in that order?
Let us define the Sharkovsky ordering asS0 � S1 � S2 � · · · � Sk � · · · � 24 � 23 � 22 � 2 � 1
where a � b means “a precedes b in the Sharkovsky ordering” and
S0 3 � 5 � 7 � . . . odd numbers (except 1)S1 2 · 3 � 2 · 5 � 2 · 7 � . . . 2·odd numbersS2 22 · 3 � 22 · 5 � 22 · 7 � . . . 22·odd numbers
...Sk 2k · 3 � 2k · 5 � 2k · 7 � . . . 2k ·odd numbers−− · · · � 24 � 23 � 22 � 2 � 1 Powers of 2 in descending order
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 76 / 139
![Page 230: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/230.jpg)
1D discrete dynamical systems
Sharkovsky theorem
Why do periodicity windows emerge in that order?
Let us define the Sharkovsky ordering asS0 � S1 � S2 � · · · � Sk � · · · � 24 � 23 � 22 � 2 � 1
where a � b means “a precedes b in the Sharkovsky ordering” and
S0 3 � 5 � 7 � . . . odd numbers (except 1)S1 2 · 3 � 2 · 5 � 2 · 7 � . . . 2·odd numbersS2 22 · 3 � 22 · 5 � 22 · 7 � . . . 22·odd numbers
...Sk 2k · 3 � 2k · 5 � 2k · 7 � . . . 2k ·odd numbers−− · · · � 24 � 23 � 22 � 2 � 1 Powers of 2 in descending order
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 76 / 139
![Page 231: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/231.jpg)
1D discrete dynamical systems
Sharkovsky theorem
Why do periodicity windows emerge in that order?
Let us define the Sharkovsky ordering asS0 � S1 � S2 � · · · � Sk � · · · � 24 � 23 � 22 � 2 � 1
where a � b means “a precedes b in the Sharkovsky ordering” and
S0 3 � 5 � 7 � . . . odd numbers (except 1)S1 2 · 3 � 2 · 5 � 2 · 7 � . . . 2·odd numbersS2 22 · 3 � 22 · 5 � 22 · 7 � . . . 22·odd numbers
...Sk 2k · 3 � 2k · 5 � 2k · 7 � . . . 2k ·odd numbers−− · · · � 24 � 23 � 22 � 2 � 1 Powers of 2 in descending order
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 76 / 139
![Page 232: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/232.jpg)
1D discrete dynamical systems
Theorem (Sharkovsky)
Let f : [a,b]→ [a,b] be a continuous function which has a periodicpoint with minimal period n. If n � m in the Sharkovsky ordering, then falso has a periodic point with mimimal period m.
As a corollary, we have the following result:
Theorem (Li and Yorke)
Let f : [a,b]→ R be a continuous function which has a period-threepoint. Then f has a periodic point with minimal period m, for allm ∈ N \ {0}.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 77 / 139
![Page 233: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/233.jpg)
1D discrete dynamical systems
Theorem (Sharkovsky)
Let f : [a,b]→ [a,b] be a continuous function which has a periodicpoint with minimal period n. If n � m in the Sharkovsky ordering, then falso has a periodic point with mimimal period m.
As a corollary, we have the following result:
Theorem (Li and Yorke)
Let f : [a,b]→ R be a continuous function which has a period-threepoint. Then f has a periodic point with minimal period m, for allm ∈ N \ {0}.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 77 / 139
![Page 234: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/234.jpg)
1D discrete dynamical systems
Theorem (Sharkovsky)
Let f : [a,b]→ [a,b] be a continuous function which has a periodicpoint with minimal period n. If n � m in the Sharkovsky ordering, then falso has a periodic point with mimimal period m.
As a corollary, we have the following result:
Theorem (Li and Yorke)
Let f : [a,b]→ R be a continuous function which has a period-threepoint. Then f has a periodic point with minimal period m, for allm ∈ N \ {0}.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 77 / 139
![Page 235: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/235.jpg)
1D discrete dynamical systems
Theorem (Sharkovsky)
Let f : [a,b]→ [a,b] be a continuous function which has a periodicpoint with minimal period n. If n � m in the Sharkovsky ordering, then falso has a periodic point with mimimal period m.
As a corollary, we have the following result:
Theorem (Li and Yorke)
Let f : [a,b]→ R be a continuous function which has a period-threepoint. Then f has a periodic point with minimal period m, for allm ∈ N \ {0}.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 77 / 139
![Page 236: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/236.jpg)
1D discrete dynamical systems
Theorem (Sharkovsky)
Let f : [a,b]→ [a,b] be a continuous function which has a periodicpoint with minimal period n. If n � m in the Sharkovsky ordering, then falso has a periodic point with mimimal period m.
As a corollary, we have the following result:
Theorem (Li and Yorke)
Let f : [a,b]→ R be a continuous function which has a period-threepoint. Then f has a periodic point with minimal period m, for allm ∈ N \ {0}.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 77 / 139
![Page 237: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/237.jpg)
1D discrete dynamical systems
If a continuous function f over the closed interval [a,b] has a period-5cycle, then it has cycles of all periods with the possible exception ofperiod-3.
Notice that the possibility of a period-3 is not ruled out.
If f has no period-2 orbits, then there do not exist higher-order periodicorbits, including chaos.
The Sharkovsky theorem, and to some extent the Li-Yorke theorem,show that even systems that exhibit chaotic behavior still have astructure.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 78 / 139
![Page 238: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/238.jpg)
1D discrete dynamical systems
If a continuous function f over the closed interval [a,b] has a period-5cycle, then it has cycles of all periods with the possible exception ofperiod-3.
Notice that the possibility of a period-3 is not ruled out.
If f has no period-2 orbits, then there do not exist higher-order periodicorbits, including chaos.
The Sharkovsky theorem, and to some extent the Li-Yorke theorem,show that even systems that exhibit chaotic behavior still have astructure.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 78 / 139
![Page 239: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/239.jpg)
1D discrete dynamical systems
If a continuous function f over the closed interval [a,b] has a period-5cycle, then it has cycles of all periods with the possible exception ofperiod-3.
Notice that the possibility of a period-3 is not ruled out.
If f has no period-2 orbits, then there do not exist higher-order periodicorbits, including chaos.
The Sharkovsky theorem, and to some extent the Li-Yorke theorem,show that even systems that exhibit chaotic behavior still have astructure.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 78 / 139
![Page 240: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/240.jpg)
1D discrete dynamical systems
If a continuous function f over the closed interval [a,b] has a period-5cycle, then it has cycles of all periods with the possible exception ofperiod-3.
Notice that the possibility of a period-3 is not ruled out.
If f has no period-2 orbits, then there do not exist higher-order periodicorbits, including chaos.
The Sharkovsky theorem, and to some extent the Li-Yorke theorem,show that even systems that exhibit chaotic behavior still have astructure.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 78 / 139
![Page 241: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/241.jpg)
1D discrete dynamical systems
More about bifurcations
The logistic map presents a cascade of period-doubling bifurcationsleading to chaos.
The first period-doubling bifurcation occurs for the logistic map atx∗ = 1− 1
µ for µ = 3, at which x∗ = 1− 1µ becomes unstable and a
stable period-two cycle emerges.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 79 / 139
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1D discrete dynamical systems
More about bifurcations
The logistic map presents a cascade of period-doubling bifurcationsleading to chaos.
The first period-doubling bifurcation occurs for the logistic map atx∗ = 1− 1
µ for µ = 3, at which x∗ = 1− 1µ becomes unstable and a
stable period-two cycle emerges.
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1D discrete dynamical systems
Period-doubling bifurcation for fµ at x∗ = 1− 1µ = 2
3 for µ∗ = 3
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1D discrete dynamical systems
The graph of the logistic map fµ for µ in a neighborhood of 3
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1D discrete dynamical systems
The graph of f 2µ for µ in a neighborhood of 3
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1D discrete dynamical systems
From a mathematical viewpoint, a period-doubling bifurcation for amap g(x ;µ) at the fixed point (x∗, µ∗) is characterized by∂g∂x (x∗, µ∗) = −1 and other conditions on higher-order derivatives.
The logistic map displays also a transcritical bifurcation at(x∗, µ∗) = (0,1), where x∗ = 0 loses stability in favor of x∗ = 1− 1
µ ,which enters the interval (0,1).
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1D discrete dynamical systems
From a mathematical viewpoint, a period-doubling bifurcation for amap g(x ;µ) at the fixed point (x∗, µ∗) is characterized by∂g∂x (x∗, µ∗) = −1 and other conditions on higher-order derivatives.
The logistic map displays also a transcritical bifurcation at(x∗, µ∗) = (0,1), where x∗ = 0 loses stability in favor of x∗ = 1− 1
µ ,which enters the interval (0,1).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 83 / 139
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1D discrete dynamical systems
Transcritical bifurcation for fµ at x∗ = 0 for µ∗ = 1
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1D discrete dynamical systems
The graph of the logistic map fµ for µ in a neighborhood of 1
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1D discrete dynamical systems
From a mathematical viewpoint, a transcritical bifurcation for a mapg(x ;µ) at the fixed point (x∗, µ∗) is characterized by ∂g
∂x (x∗, µ∗) = 1,∂g∂µ(x∗, µ∗) = 0, ∂
2g∂x2 (x∗, µ∗) 6= 0.
Indeed, for the logistic map fµ we have ∂2f∂x2 (0,1) = −2.
Finally, the logistic map displays also a triple saddle-node (tangent, orfold) bifurcation of the third iterate when the period-three cycleemerges.
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1D discrete dynamical systems
From a mathematical viewpoint, a transcritical bifurcation for a mapg(x ;µ) at the fixed point (x∗, µ∗) is characterized by ∂g
∂x (x∗, µ∗) = 1,∂g∂µ(x∗, µ∗) = 0, ∂
2g∂x2 (x∗, µ∗) 6= 0.
Indeed, for the logistic map fµ we have ∂2f∂x2 (0,1) = −2.
Finally, the logistic map displays also a triple saddle-node (tangent, orfold) bifurcation of the third iterate when the period-three cycleemerges.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 86 / 139
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1D discrete dynamical systems
From a mathematical viewpoint, a transcritical bifurcation for a mapg(x ;µ) at the fixed point (x∗, µ∗) is characterized by ∂g
∂x (x∗, µ∗) = 1,∂g∂µ(x∗, µ∗) = 0, ∂
2g∂x2 (x∗, µ∗) 6= 0.
Indeed, for the logistic map fµ we have ∂2f∂x2 (0,1) = −2.
Finally, the logistic map displays also a triple saddle-node (tangent, orfold) bifurcation of the third iterate when the period-three cycleemerges.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 86 / 139
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1D discrete dynamical systems
In general, when a saddle-node bifurcation for a map g(x ;µ) at thefixed point (x∗, µ∗) occurs, a stable (the node) and an unstable (thesaddle) fixed points arise.
Saddle-node bifurcation for a map g(x ;µ) at the fixed point (x∗, µ∗)
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1D discrete dynamical systems
With the triple saddle-node (tangent, or fold) bifurcation of the thirditerate of the logistic map, a stable and an unstable period-three cyclesemerge.
The graph of the logistic map fµ for µ in a neighborhood of1 +√
8 = 3.8284
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1D discrete dynamical systems
The graph of f 3µ for µ in a neighborhood of 1 +
√8 = 3.8284
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1D discrete dynamical systems
From a mathematical viewpoint, a saddle-node bifurcation for a mapg(x ;µ) at the fixed point (x∗, µ∗) is characterized by ∂g
∂x (x∗, µ∗) = 1,∂g∂µ(x∗, µ∗) 6= 0, ∂
2g∂x2 (x∗, µ∗) 6= 0.
With the logistic map fµ, we have g(x ;µ) = f 3µ (x).
There exists a last kind of 1-d bifurcation, not displayed by the logisticmap, i.e., the pitchfork bifurcation.
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1D discrete dynamical systems
From a mathematical viewpoint, a saddle-node bifurcation for a mapg(x ;µ) at the fixed point (x∗, µ∗) is characterized by ∂g
∂x (x∗, µ∗) = 1,∂g∂µ(x∗, µ∗) 6= 0, ∂
2g∂x2 (x∗, µ∗) 6= 0.
With the logistic map fµ, we have g(x ;µ) = f 3µ (x).
There exists a last kind of 1-d bifurcation, not displayed by the logisticmap, i.e., the pitchfork bifurcation.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 90 / 139
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1D discrete dynamical systems
From a mathematical viewpoint, a saddle-node bifurcation for a mapg(x ;µ) at the fixed point (x∗, µ∗) is characterized by ∂g
∂x (x∗, µ∗) = 1,∂g∂µ(x∗, µ∗) 6= 0, ∂
2g∂x2 (x∗, µ∗) 6= 0.
With the logistic map fµ, we have g(x ;µ) = f 3µ (x).
There exists a last kind of 1-d bifurcation, not displayed by the logisticmap, i.e., the pitchfork bifurcation.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 90 / 139
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1D discrete dynamical systems
At a pitchfork bifurcation, a fixed point loses stability in favor of two newbranches of fixed points.
Pitchfork bifurcation for gµ at x∗ = 0 for µ∗ = 1
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1D discrete dynamical systems
For the map g(x ;µ) = µx − x3 a pitchfork bifurcation occurs at(x∗, µ∗) = (0,1), where x∗ = 0 loses stability in favor ofx∗1,2 = ±
√µ− 1.
The graph of gµ(x) = µx − x3 for µ in a neighborhood of 1
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1D discrete dynamical systems
From a mathematical viewpoint, a pitchfork bifurcation for a mapg(x ;µ) at the fixed point (x∗, µ∗) is characterized by ∂g
∂x (x∗, µ∗) = 1,∂g∂µ(x∗, µ∗) = 0, ∂
2g∂x2 (x∗, µ∗) = 0.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 93 / 139
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1D discrete dynamical systems
Summarizing, for a map g(x ;µ) at the fixed point (x∗, µ∗) we have:
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1D discrete dynamical systems
References on 1D discrete dynamical systems:
– Elaydi SN (2007) Discrete Chaos, Second Edition: With Applicationsin Science and Engineering. CRC Press, Taylor & Francis Group,Boca Raton, Florida. Chapters 1-2, Paragraphs 1.2, 1.4–1.9, 2.5, 2.6
– Shone R (2002) Economic Dynamics. Phase Diagrams and TheirEconomic Application, second ed. Cambridge University Press,Cambridge. Chapter 3, Paragraphs 3.1–3.5
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First applications: Heterogeneous Agents Models
Introduction to Heterogeneous Agents Models (HAMs)
We will deal with HAMs presenting the real and the financial sides ofthe economy, in order to study the interactions, mainly in terms ofstability/instability, of the two sectors.
We will build our models by blocks of increasing complexity:
1) We will consider just the financial sector.
2) We will consider just the real sector.
3) We will jointly consider the two sectors via the interaction degreeapproach.
4) We will show how to add further elements, such as the switchingmechanism, endogenous beliefs about the fundamental, etc.
For 3) and 4) we will need to analyze 2D and 3D systems.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 96 / 139
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First applications: Heterogeneous Agents Models
Introduction to Heterogeneous Agents Models (HAMs)
We will deal with HAMs presenting the real and the financial sides ofthe economy, in order to study the interactions, mainly in terms ofstability/instability, of the two sectors.
We will build our models by blocks of increasing complexity:
1) We will consider just the financial sector.
2) We will consider just the real sector.
3) We will jointly consider the two sectors via the interaction degreeapproach.
4) We will show how to add further elements, such as the switchingmechanism, endogenous beliefs about the fundamental, etc.
For 3) and 4) we will need to analyze 2D and 3D systems.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 96 / 139
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First applications: Heterogeneous Agents Models
Introduction to Heterogeneous Agents Models (HAMs)
We will deal with HAMs presenting the real and the financial sides ofthe economy, in order to study the interactions, mainly in terms ofstability/instability, of the two sectors.
We will build our models by blocks of increasing complexity:
1) We will consider just the financial sector.
2) We will consider just the real sector.
3) We will jointly consider the two sectors via the interaction degreeapproach.
4) We will show how to add further elements, such as the switchingmechanism, endogenous beliefs about the fundamental, etc.
For 3) and 4) we will need to analyze 2D and 3D systems.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 96 / 139
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First applications: Heterogeneous Agents Models
Introduction to Heterogeneous Agents Models (HAMs)
We will deal with HAMs presenting the real and the financial sides ofthe economy, in order to study the interactions, mainly in terms ofstability/instability, of the two sectors.
We will build our models by blocks of increasing complexity:
1) We will consider just the financial sector.
2) We will consider just the real sector.
3) We will jointly consider the two sectors via the interaction degreeapproach.
4) We will show how to add further elements, such as the switchingmechanism, endogenous beliefs about the fundamental, etc.
For 3) and 4) we will need to analyze 2D and 3D systems.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 96 / 139
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First applications: Heterogeneous Agents Models
Introduction to Heterogeneous Agents Models (HAMs)
We will deal with HAMs presenting the real and the financial sides ofthe economy, in order to study the interactions, mainly in terms ofstability/instability, of the two sectors.
We will build our models by blocks of increasing complexity:
1) We will consider just the financial sector.
2) We will consider just the real sector.
3) We will jointly consider the two sectors via the interaction degreeapproach.
4) We will show how to add further elements, such as the switchingmechanism, endogenous beliefs about the fundamental, etc.
For 3) and 4) we will need to analyze 2D and 3D systems.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 96 / 139
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First applications: Heterogeneous Agents Models
Introduction to Heterogeneous Agents Models (HAMs)
We will deal with HAMs presenting the real and the financial sides ofthe economy, in order to study the interactions, mainly in terms ofstability/instability, of the two sectors.
We will build our models by blocks of increasing complexity:
1) We will consider just the financial sector.
2) We will consider just the real sector.
3) We will jointly consider the two sectors via the interaction degreeapproach.
4) We will show how to add further elements, such as the switchingmechanism, endogenous beliefs about the fundamental, etc.
For 3) and 4) we will need to analyze 2D and 3D systems.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 96 / 139
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First applications: Heterogeneous Agents Models
Introduction to Heterogeneous Agents Models (HAMs)
We will deal with HAMs presenting the real and the financial sides ofthe economy, in order to study the interactions, mainly in terms ofstability/instability, of the two sectors.
We will build our models by blocks of increasing complexity:
1) We will consider just the financial sector.
2) We will consider just the real sector.
3) We will jointly consider the two sectors via the interaction degreeapproach.
4) We will show how to add further elements, such as the switchingmechanism, endogenous beliefs about the fundamental, etc.
For 3) and 4) we will need to analyze 2D and 3D systems.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 96 / 139
![Page 271: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/271.jpg)
First applications: Heterogeneous Agents Models
1) The financial sector
At first, we assume that the market is populated just byfundamentalists (see Day and Huang, 1990).
Believing that stock prices will return to their fundamental value, theybuy stocks in undervalued markets and sell stocks in overvaluedmarkets.
The market maker determines excess demand and adjusts the stockprice for the next period: if aggregate excess demand is positive(negative), price increases (decreases).
Pt+1 − Pt = γg(Dt ),
where γ > 0 is the market maker reactivity, Dt = F − Pt reflects theorders placed by fundamentalists, and g is a function increasing in Dtand vanishing for Dt = 0.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 97 / 139
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First applications: Heterogeneous Agents Models
1) The financial sector
At first, we assume that the market is populated just byfundamentalists (see Day and Huang, 1990).
Believing that stock prices will return to their fundamental value, theybuy stocks in undervalued markets and sell stocks in overvaluedmarkets.
The market maker determines excess demand and adjusts the stockprice for the next period: if aggregate excess demand is positive(negative), price increases (decreases).
Pt+1 − Pt = γg(Dt ),
where γ > 0 is the market maker reactivity, Dt = F − Pt reflects theorders placed by fundamentalists, and g is a function increasing in Dtand vanishing for Dt = 0.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 97 / 139
![Page 273: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/273.jpg)
First applications: Heterogeneous Agents Models
1) The financial sector
At first, we assume that the market is populated just byfundamentalists (see Day and Huang, 1990).
Believing that stock prices will return to their fundamental value, theybuy stocks in undervalued markets and sell stocks in overvaluedmarkets.
The market maker determines excess demand and adjusts the stockprice for the next period: if aggregate excess demand is positive(negative), price increases (decreases).
Pt+1 − Pt = γg(Dt ),
where γ > 0 is the market maker reactivity, Dt = F − Pt reflects theorders placed by fundamentalists, and g is a function increasing in Dtand vanishing for Dt = 0.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 97 / 139
![Page 274: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/274.jpg)
First applications: Heterogeneous Agents Models
1) The financial sector
At first, we assume that the market is populated just byfundamentalists (see Day and Huang, 1990).
Believing that stock prices will return to their fundamental value, theybuy stocks in undervalued markets and sell stocks in overvaluedmarkets.
The market maker determines excess demand and adjusts the stockprice for the next period: if aggregate excess demand is positive(negative), price increases (decreases).
Pt+1 − Pt = γg(Dt ),
where γ > 0 is the market maker reactivity, Dt = F − Pt reflects theorders placed by fundamentalists, and g is a function increasing in Dtand vanishing for Dt = 0.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 97 / 139
![Page 275: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/275.jpg)
First applications: Heterogeneous Agents Models
1) The financial sector
At first, we assume that the market is populated just byfundamentalists (see Day and Huang, 1990).
Believing that stock prices will return to their fundamental value, theybuy stocks in undervalued markets and sell stocks in overvaluedmarkets.
The market maker determines excess demand and adjusts the stockprice for the next period: if aggregate excess demand is positive(negative), price increases (decreases).
Pt+1 − Pt = γg(Dt ),
where γ > 0 is the market maker reactivity, Dt = F − Pt reflects theorders placed by fundamentalists, and g is a function increasing in Dtand vanishing for Dt = 0.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 97 / 139
![Page 276: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/276.jpg)
First applications: Heterogeneous Agents Models
1) The financial sector
At first, we assume that the market is populated just byfundamentalists (see Day and Huang, 1990).
Believing that stock prices will return to their fundamental value, theybuy stocks in undervalued markets and sell stocks in overvaluedmarkets.
The market maker determines excess demand and adjusts the stockprice for the next period: if aggregate excess demand is positive(negative), price increases (decreases).
Pt+1 − Pt = γg(Dt ),
where γ > 0 is the market maker reactivity, Dt = F − Pt reflects theorders placed by fundamentalists, and g is a function increasing in Dtand vanishing for Dt = 0.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 97 / 139
![Page 277: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/277.jpg)
First applications: Heterogeneous Agents Models
The simplest case: a linear price adjustment mechanism, i.e.,g(Dt ) = σDt = σ(F − Pt ), where σ > 0 is the fundamentalists reactivityparameter.
Hence we obtain:Pt+1 = Pt + γσ(F − Pt ).
We call γ = γσ > 0 the joint reactivity of the financial market.
The unique equilibrium is given by P∗ = F and it is stable for1− γ ∈ (−1,1), i.e., for γ < 2.
In such linear setting, when P∗ = F becomes unstable, the systemdiverges.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 98 / 139
![Page 278: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/278.jpg)
First applications: Heterogeneous Agents Models
The simplest case: a linear price adjustment mechanism, i.e.,g(Dt ) = σDt = σ(F − Pt ), where σ > 0 is the fundamentalists reactivityparameter.
Hence we obtain:Pt+1 = Pt + γσ(F − Pt ).
We call γ = γσ > 0 the joint reactivity of the financial market.
The unique equilibrium is given by P∗ = F and it is stable for1− γ ∈ (−1,1), i.e., for γ < 2.
In such linear setting, when P∗ = F becomes unstable, the systemdiverges.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 98 / 139
![Page 279: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/279.jpg)
First applications: Heterogeneous Agents Models
The simplest case: a linear price adjustment mechanism, i.e.,g(Dt ) = σDt = σ(F − Pt ), where σ > 0 is the fundamentalists reactivityparameter.
Hence we obtain:Pt+1 = Pt + γσ(F − Pt ).
We call γ = γσ > 0 the joint reactivity of the financial market.
The unique equilibrium is given by P∗ = F and it is stable for1− γ ∈ (−1,1), i.e., for γ < 2.
In such linear setting, when P∗ = F becomes unstable, the systemdiverges.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 98 / 139
![Page 280: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/280.jpg)
First applications: Heterogeneous Agents Models
The simplest case: a linear price adjustment mechanism, i.e.,g(Dt ) = σDt = σ(F − Pt ), where σ > 0 is the fundamentalists reactivityparameter.
Hence we obtain:Pt+1 = Pt + γσ(F − Pt ).
We call γ = γσ > 0 the joint reactivity of the financial market.
The unique equilibrium is given by P∗ = F and it is stable for1− γ ∈ (−1,1), i.e., for γ < 2.
In such linear setting, when P∗ = F becomes unstable, the systemdiverges.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 98 / 139
![Page 281: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/281.jpg)
First applications: Heterogeneous Agents Models
The simplest case: a linear price adjustment mechanism, i.e.,g(Dt ) = σDt = σ(F − Pt ), where σ > 0 is the fundamentalists reactivityparameter.
Hence we obtain:Pt+1 = Pt + γσ(F − Pt ).
We call γ = γσ > 0 the joint reactivity of the financial market.
The unique equilibrium is given by P∗ = F and it is stable for1− γ ∈ (−1,1), i.e., for γ < 2.
In such linear setting, when P∗ = F becomes unstable, the systemdiverges.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 98 / 139
![Page 282: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/282.jpg)
First applications: Heterogeneous Agents Models
In order to obtain a parabola recalling the logistic equation, we couldconsider a multiplicative price adjustment mechanism
Pt+1 − Pt
Pt= γg(Dt ).
If g(Dt ) = σDt = σ(F − Pt ), setting γ = γσ, we get
Pt+1 = Pt (1 + γg(Dt )) = Pt (1 + γF − γPt ).
The equilibria are P∗ = 0 (not acceptable) and P∗ = F .Since for φ(P) = P(1 + γF − γP), we have φ′(P) = 1 + γF − 2γP, itholds that
φ′(0) = 1 + γF > 1 and thus P∗ = 0 is always unstable (differentlyfrom the logistic equation);φ′(F ) = 1− γF ∈ (−1,1) for γ < 2
F .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 99 / 139
![Page 283: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/283.jpg)
First applications: Heterogeneous Agents Models
In order to obtain a parabola recalling the logistic equation, we couldconsider a multiplicative price adjustment mechanism
Pt+1 − Pt
Pt= γg(Dt ).
If g(Dt ) = σDt = σ(F − Pt ), setting γ = γσ, we get
Pt+1 = Pt (1 + γg(Dt )) = Pt (1 + γF − γPt ).
The equilibria are P∗ = 0 (not acceptable) and P∗ = F .Since for φ(P) = P(1 + γF − γP), we have φ′(P) = 1 + γF − 2γP, itholds that
φ′(0) = 1 + γF > 1 and thus P∗ = 0 is always unstable (differentlyfrom the logistic equation);φ′(F ) = 1− γF ∈ (−1,1) for γ < 2
F .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 99 / 139
![Page 284: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/284.jpg)
First applications: Heterogeneous Agents Models
In order to obtain a parabola recalling the logistic equation, we couldconsider a multiplicative price adjustment mechanism
Pt+1 − Pt
Pt= γg(Dt ).
If g(Dt ) = σDt = σ(F − Pt ), setting γ = γσ, we get
Pt+1 = Pt (1 + γg(Dt )) = Pt (1 + γF − γPt ).
The equilibria are P∗ = 0 (not acceptable) and P∗ = F .Since for φ(P) = P(1 + γF − γP), we have φ′(P) = 1 + γF − 2γP, itholds that
φ′(0) = 1 + γF > 1 and thus P∗ = 0 is always unstable (differentlyfrom the logistic equation);φ′(F ) = 1− γF ∈ (−1,1) for γ < 2
F .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 99 / 139
![Page 285: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/285.jpg)
First applications: Heterogeneous Agents Models
In order to obtain a parabola recalling the logistic equation, we couldconsider a multiplicative price adjustment mechanism
Pt+1 − Pt
Pt= γg(Dt ).
If g(Dt ) = σDt = σ(F − Pt ), setting γ = γσ, we get
Pt+1 = Pt (1 + γg(Dt )) = Pt (1 + γF − γPt ).
The equilibria are P∗ = 0 (not acceptable) and P∗ = F .Since for φ(P) = P(1 + γF − γP), we have φ′(P) = 1 + γF − 2γP, itholds that
φ′(0) = 1 + γF > 1 and thus P∗ = 0 is always unstable (differentlyfrom the logistic equation);φ′(F ) = 1− γF ∈ (−1,1) for γ < 2
F .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 99 / 139
![Page 286: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/286.jpg)
First applications: Heterogeneous Agents Models
In order to obtain a parabola recalling the logistic equation, we couldconsider a multiplicative price adjustment mechanism
Pt+1 − Pt
Pt= γg(Dt ).
If g(Dt ) = σDt = σ(F − Pt ), setting γ = γσ, we get
Pt+1 = Pt (1 + γg(Dt )) = Pt (1 + γF − γPt ).
The equilibria are P∗ = 0 (not acceptable) and P∗ = F .Since for φ(P) = P(1 + γF − γP), we have φ′(P) = 1 + γF − 2γP, itholds that
φ′(0) = 1 + γF > 1 and thus P∗ = 0 is always unstable (differentlyfrom the logistic equation);φ′(F ) = 1− γF ∈ (−1,1) for γ < 2
F .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 99 / 139
![Page 287: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/287.jpg)
First applications: Heterogeneous Agents Models
In order to obtain a parabola recalling the logistic equation, we couldconsider a multiplicative price adjustment mechanism
Pt+1 − Pt
Pt= γg(Dt ).
If g(Dt ) = σDt = σ(F − Pt ), setting γ = γσ, we get
Pt+1 = Pt (1 + γg(Dt )) = Pt (1 + γF − γPt ).
The equilibria are P∗ = 0 (not acceptable) and P∗ = F .Since for φ(P) = P(1 + γF − γP), we have φ′(P) = 1 + γF − 2γP, itholds that
φ′(0) = 1 + γF > 1 and thus P∗ = 0 is always unstable (differentlyfrom the logistic equation);φ′(F ) = 1− γF ∈ (−1,1) for γ < 2
F .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 99 / 139
![Page 288: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/288.jpg)
First applications: Heterogeneous Agents Models
In addition to fundamentalists, we can also deal with chartists in thefinancial market (see Day and Huang, 1990).
In a bull market chartists buy stocks, while in a bear market they sellstocks.
According to Tramontana et al. (2009), we assume that the chartists’demand is linear, i.e., DC
t = η(Pt − F ), where η > 0 is the chartistsreactivity parameter.
Justified by increasing profit opportunities, they assume the nonlinearfundamentalists’ demand DF
t = σ(F − Pt )3.
Hence the price dynamic equation becomes:
Pt+1 = Pt + γ(η(Pt − F ) + σ(F − Pt )3).
Introducing Xt = Pt − F , it is possible to rewrite it in deviations from thefundamental value as
Xt+1 = Xt + γ(ηXt − σX 3t ) = Xt (1 + γ(η − σX 2
t )).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 100 / 139
![Page 289: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/289.jpg)
First applications: Heterogeneous Agents Models
In addition to fundamentalists, we can also deal with chartists in thefinancial market (see Day and Huang, 1990).
In a bull market chartists buy stocks, while in a bear market they sellstocks.
According to Tramontana et al. (2009), we assume that the chartists’demand is linear, i.e., DC
t = η(Pt − F ), where η > 0 is the chartistsreactivity parameter.
Justified by increasing profit opportunities, they assume the nonlinearfundamentalists’ demand DF
t = σ(F − Pt )3.
Hence the price dynamic equation becomes:
Pt+1 = Pt + γ(η(Pt − F ) + σ(F − Pt )3).
Introducing Xt = Pt − F , it is possible to rewrite it in deviations from thefundamental value as
Xt+1 = Xt + γ(ηXt − σX 3t ) = Xt (1 + γ(η − σX 2
t )).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 100 / 139
![Page 290: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/290.jpg)
First applications: Heterogeneous Agents Models
In addition to fundamentalists, we can also deal with chartists in thefinancial market (see Day and Huang, 1990).
In a bull market chartists buy stocks, while in a bear market they sellstocks.
According to Tramontana et al. (2009), we assume that the chartists’demand is linear, i.e., DC
t = η(Pt − F ), where η > 0 is the chartistsreactivity parameter.
Justified by increasing profit opportunities, they assume the nonlinearfundamentalists’ demand DF
t = σ(F − Pt )3.
Hence the price dynamic equation becomes:
Pt+1 = Pt + γ(η(Pt − F ) + σ(F − Pt )3).
Introducing Xt = Pt − F , it is possible to rewrite it in deviations from thefundamental value as
Xt+1 = Xt + γ(ηXt − σX 3t ) = Xt (1 + γ(η − σX 2
t )).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 100 / 139
![Page 291: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/291.jpg)
First applications: Heterogeneous Agents Models
In addition to fundamentalists, we can also deal with chartists in thefinancial market (see Day and Huang, 1990).
In a bull market chartists buy stocks, while in a bear market they sellstocks.
According to Tramontana et al. (2009), we assume that the chartists’demand is linear, i.e., DC
t = η(Pt − F ), where η > 0 is the chartistsreactivity parameter.
Justified by increasing profit opportunities, they assume the nonlinearfundamentalists’ demand DF
t = σ(F − Pt )3.
Hence the price dynamic equation becomes:
Pt+1 = Pt + γ(η(Pt − F ) + σ(F − Pt )3).
Introducing Xt = Pt − F , it is possible to rewrite it in deviations from thefundamental value as
Xt+1 = Xt + γ(ηXt − σX 3t ) = Xt (1 + γ(η − σX 2
t )).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 100 / 139
![Page 292: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/292.jpg)
First applications: Heterogeneous Agents Models
In addition to fundamentalists, we can also deal with chartists in thefinancial market (see Day and Huang, 1990).
In a bull market chartists buy stocks, while in a bear market they sellstocks.
According to Tramontana et al. (2009), we assume that the chartists’demand is linear, i.e., DC
t = η(Pt − F ), where η > 0 is the chartistsreactivity parameter.
Justified by increasing profit opportunities, they assume the nonlinearfundamentalists’ demand DF
t = σ(F − Pt )3.
Hence the price dynamic equation becomes:
Pt+1 = Pt + γ(η(Pt − F ) + σ(F − Pt )3).
Introducing Xt = Pt − F , it is possible to rewrite it in deviations from thefundamental value as
Xt+1 = Xt + γ(ηXt − σX 3t ) = Xt (1 + γ(η − σX 2
t )).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 100 / 139
![Page 293: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/293.jpg)
First applications: Heterogeneous Agents Models
In addition to fundamentalists, we can also deal with chartists in thefinancial market (see Day and Huang, 1990).
In a bull market chartists buy stocks, while in a bear market they sellstocks.
According to Tramontana et al. (2009), we assume that the chartists’demand is linear, i.e., DC
t = η(Pt − F ), where η > 0 is the chartistsreactivity parameter.
Justified by increasing profit opportunities, they assume the nonlinearfundamentalists’ demand DF
t = σ(F − Pt )3.
Hence the price dynamic equation becomes:
Pt+1 = Pt + γ(η(Pt − F ) + σ(F − Pt )3).
Introducing Xt = Pt − F , it is possible to rewrite it in deviations from thefundamental value as
Xt+1 = Xt + γ(ηXt − σX 3t ) = Xt (1 + γ(η − σX 2
t )).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 100 / 139
![Page 294: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/294.jpg)
First applications: Heterogeneous Agents Models
In addition to fundamentalists, we can also deal with chartists in thefinancial market (see Day and Huang, 1990).
In a bull market chartists buy stocks, while in a bear market they sellstocks.
According to Tramontana et al. (2009), we assume that the chartists’demand is linear, i.e., DC
t = η(Pt − F ), where η > 0 is the chartistsreactivity parameter.
Justified by increasing profit opportunities, they assume the nonlinearfundamentalists’ demand DF
t = σ(F − Pt )3.
Hence the price dynamic equation becomes:
Pt+1 = Pt + γ(η(Pt − F ) + σ(F − Pt )3).
Introducing Xt = Pt − F , it is possible to rewrite it in deviations from thefundamental value as
Xt+1 = Xt + γ(ηXt − σX 3t ) = Xt (1 + γ(η − σX 2
t )).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 100 / 139
![Page 295: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/295.jpg)
First applications: Heterogeneous Agents Models
The steady states are X ∗ = 0 and X ∗ = ±√
ησ .
They are all positive for F >√
ησ .
Since for ϕ(X ) = X (1 + γ(η − σX 2)), we haveϕ′(X ) = 1 + γη − 3γσX 2, it holds that
ϕ′(0) = 1 + γη > 1 and thus X ∗ = 0 is always unstable.
ϕ′(±√
ησ
)= 1− 2γη ∈ (−1,1) for γη < 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 101 / 139
![Page 296: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/296.jpg)
First applications: Heterogeneous Agents Models
The steady states are X ∗ = 0 and X ∗ = ±√
ησ .
They are all positive for F >√
ησ .
Since for ϕ(X ) = X (1 + γ(η − σX 2)), we haveϕ′(X ) = 1 + γη − 3γσX 2, it holds that
ϕ′(0) = 1 + γη > 1 and thus X ∗ = 0 is always unstable.
ϕ′(±√
ησ
)= 1− 2γη ∈ (−1,1) for γη < 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 101 / 139
![Page 297: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/297.jpg)
First applications: Heterogeneous Agents Models
The steady states are X ∗ = 0 and X ∗ = ±√
ησ .
They are all positive for F >√
ησ .
Since for ϕ(X ) = X (1 + γ(η − σX 2)), we haveϕ′(X ) = 1 + γη − 3γσX 2, it holds that
ϕ′(0) = 1 + γη > 1 and thus X ∗ = 0 is always unstable.
ϕ′(±√
ησ
)= 1− 2γη ∈ (−1,1) for γη < 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 101 / 139
![Page 298: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/298.jpg)
First applications: Heterogeneous Agents Models
The steady states are X ∗ = 0 and X ∗ = ±√
ησ .
They are all positive for F >√
ησ .
Since for ϕ(X ) = X (1 + γ(η − σX 2)), we haveϕ′(X ) = 1 + γη − 3γσX 2, it holds that
ϕ′(0) = 1 + γη > 1 and thus X ∗ = 0 is always unstable.
ϕ′(±√
ησ
)= 1− 2γη ∈ (−1,1) for γη < 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 101 / 139
![Page 299: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/299.jpg)
First applications: Heterogeneous Agents Models
The steady states are X ∗ = 0 and X ∗ = ±√
ησ .
They are all positive for F >√
ησ .
Since for ϕ(X ) = X (1 + γ(η − σX 2)), we haveϕ′(X ) = 1 + γη − 3γσX 2, it holds that
ϕ′(0) = 1 + γη > 1 and thus X ∗ = 0 is always unstable.
ϕ′(±√
ησ
)= 1− 2γη ∈ (−1,1) for γη < 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 101 / 139
![Page 300: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/300.jpg)
First applications: Heterogeneous Agents Models
What happens when introducing a nonlinear price adjustmentmechanism which determines a bounded price variation in every timeperiod, as done in Naimzada and Pireddu (2015a)?
Pt+1 − Pt = γg(Dt ) = γa2
(a1 + a2
a1 exp(−Dt ) + a2− 1),
with a1,a2 positive parameters.
With this choice, g is increasing in Dt and it vanishes when Dt = 0.
Moreover, g is bounded from below by −a2 and from above by a1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 102 / 139
![Page 301: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/301.jpg)
First applications: Heterogeneous Agents Models
What happens when introducing a nonlinear price adjustmentmechanism which determines a bounded price variation in every timeperiod, as done in Naimzada and Pireddu (2015a)?
Pt+1 − Pt = γg(Dt ) = γa2
(a1 + a2
a1 exp(−Dt ) + a2− 1),
with a1,a2 positive parameters.
With this choice, g is increasing in Dt and it vanishes when Dt = 0.
Moreover, g is bounded from below by −a2 and from above by a1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 102 / 139
![Page 302: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/302.jpg)
First applications: Heterogeneous Agents Models
What happens when introducing a nonlinear price adjustmentmechanism which determines a bounded price variation in every timeperiod, as done in Naimzada and Pireddu (2015a)?
Pt+1 − Pt = γg(Dt ) = γa2
(a1 + a2
a1 exp(−Dt ) + a2− 1),
with a1,a2 positive parameters.
With this choice, g is increasing in Dt and it vanishes when Dt = 0.
Moreover, g is bounded from below by −a2 and from above by a1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 102 / 139
![Page 303: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/303.jpg)
First applications: Heterogeneous Agents Models
What happens when introducing a nonlinear price adjustmentmechanism which determines a bounded price variation in every timeperiod, as done in Naimzada and Pireddu (2015a)?
Pt+1 − Pt = γg(Dt ) = γa2
(a1 + a2
a1 exp(−Dt ) + a2− 1),
with a1,a2 positive parameters.
With this choice, g is increasing in Dt and it vanishes when Dt = 0.
Moreover, g is bounded from below by −a2 and from above by a1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 102 / 139
![Page 304: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/304.jpg)
First applications: Heterogeneous Agents Models
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 103 / 139
![Page 305: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/305.jpg)
First applications: Heterogeneous Agents Models
Hence, the price variations are gradual and the presence of the twohorizontal asymptotes prevents the dynamics of the stock market fromdiverging and helps avoiding negativity issues.
The above adjustment mechanism may be implemented assuming thatthe market maker is forced by a central authority to behave in adifferent manner according to the excess demand value.
In order to avoid overreaction phenomena, he/she has to be morecautious in adjusting prices when excess demand is large, whilehe/she has more freedom when excess demand is small, i.e., whenthe system is close to an equilibrium.
Since we allow a1 and a2 to be possibly different, the market makercan react in a different manner to a positive or to a negative excessdemand.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 104 / 139
![Page 306: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/306.jpg)
First applications: Heterogeneous Agents Models
Hence, the price variations are gradual and the presence of the twohorizontal asymptotes prevents the dynamics of the stock market fromdiverging and helps avoiding negativity issues.
The above adjustment mechanism may be implemented assuming thatthe market maker is forced by a central authority to behave in adifferent manner according to the excess demand value.
In order to avoid overreaction phenomena, he/she has to be morecautious in adjusting prices when excess demand is large, whilehe/she has more freedom when excess demand is small, i.e., whenthe system is close to an equilibrium.
Since we allow a1 and a2 to be possibly different, the market makercan react in a different manner to a positive or to a negative excessdemand.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 104 / 139
![Page 307: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/307.jpg)
First applications: Heterogeneous Agents Models
Hence, the price variations are gradual and the presence of the twohorizontal asymptotes prevents the dynamics of the stock market fromdiverging and helps avoiding negativity issues.
The above adjustment mechanism may be implemented assuming thatthe market maker is forced by a central authority to behave in adifferent manner according to the excess demand value.
In order to avoid overreaction phenomena, he/she has to be morecautious in adjusting prices when excess demand is large, whilehe/she has more freedom when excess demand is small, i.e., whenthe system is close to an equilibrium.
Since we allow a1 and a2 to be possibly different, the market makercan react in a different manner to a positive or to a negative excessdemand.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 104 / 139
![Page 308: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/308.jpg)
First applications: Heterogeneous Agents Models
Hence, the price variations are gradual and the presence of the twohorizontal asymptotes prevents the dynamics of the stock market fromdiverging and helps avoiding negativity issues.
The above adjustment mechanism may be implemented assuming thatthe market maker is forced by a central authority to behave in adifferent manner according to the excess demand value.
In order to avoid overreaction phenomena, he/she has to be morecautious in adjusting prices when excess demand is large, whilehe/she has more freedom when excess demand is small, i.e., whenthe system is close to an equilibrium.
Since we allow a1 and a2 to be possibly different, the market makercan react in a different manner to a positive or to a negative excessdemand.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 104 / 139
![Page 309: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/309.jpg)
First applications: Heterogeneous Agents Models
Introducing Xt = Pt − F , we rewrite
Pt+1 = Pt + γa2
(a1 + a2
a1 exp(−(η(Pt − F ) + σ(F − Pt )3)) + a2− 1)
in deviations from the fundamental value as
Xt+1 = Xt + γa2
(a1 + a2
a1 exp(−(ηXt − σX 3t )) + a2
− 1
).
The steady states, as in Tramontana et al. (2009), are again thesolutions to Dt = 0, ∀t , i.e., X ∗ = 0 and X ∗ = ±
√ησ .
They are all positive for F >√
ησ .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 105 / 139
![Page 310: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/310.jpg)
First applications: Heterogeneous Agents Models
Introducing Xt = Pt − F , we rewrite
Pt+1 = Pt + γa2
(a1 + a2
a1 exp(−(η(Pt − F ) + σ(F − Pt )3)) + a2− 1)
in deviations from the fundamental value as
Xt+1 = Xt + γa2
(a1 + a2
a1 exp(−(ηXt − σX 3t )) + a2
− 1
).
The steady states, as in Tramontana et al. (2009), are again thesolutions to Dt = 0, ∀t , i.e., X ∗ = 0 and X ∗ = ±
√ησ .
They are all positive for F >√
ησ .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 105 / 139
![Page 311: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/311.jpg)
First applications: Heterogeneous Agents Models
Introducing Xt = Pt − F , we rewrite
Pt+1 = Pt + γa2
(a1 + a2
a1 exp(−(η(Pt − F ) + σ(F − Pt )3)) + a2− 1)
in deviations from the fundamental value as
Xt+1 = Xt + γa2
(a1 + a2
a1 exp(−(ηXt − σX 3t )) + a2
− 1
).
The steady states, as in Tramontana et al. (2009), are again thesolutions to Dt = 0, ∀t , i.e., X ∗ = 0 and X ∗ = ±
√ησ .
They are all positive for F >√
ησ .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 105 / 139
![Page 312: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/312.jpg)
First applications: Heterogeneous Agents Models
Since for ψ(X ) = X + γa2
(a1+a2
a1 exp(−(ηX−σX 3))+a2− 1), we have
ψ′(X ) = 1− γa1a2(a1 + a2)(3σX 2 − η)
(a1 exp(−(ηX − σX 3)) + a2)2 exp(ηX − σX 3),
it holds that
ψ′(0) = 1 + γa1a2ηa1+a2
> 1, implying that X ∗ = 0 is always unstable.
ψ′(±√
ησ
)= 1− 2γη(
1a1
+ 1a2
) ∈ (−1,1) for γη < 1a1
+ 1a2.
For any given value of γ and η, either smaller or larger than 1, it ispossible to find a1 and a2 sufficiently small, so that our stabilitycondition is satisfied, even for those values of γ and η that make thenonzero steady states in Tramontana et al. (2009) unstable.
When a1 or a2 are sufficiently small, the map ψ is strictly increasing.
This prevents the existence of interesting dynamics.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 106 / 139
![Page 313: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/313.jpg)
First applications: Heterogeneous Agents Models
Since for ψ(X ) = X + γa2
(a1+a2
a1 exp(−(ηX−σX 3))+a2− 1), we have
ψ′(X ) = 1− γa1a2(a1 + a2)(3σX 2 − η)
(a1 exp(−(ηX − σX 3)) + a2)2 exp(ηX − σX 3),
it holds that
ψ′(0) = 1 + γa1a2ηa1+a2
> 1, implying that X ∗ = 0 is always unstable.
ψ′(±√
ησ
)= 1− 2γη(
1a1
+ 1a2
) ∈ (−1,1) for γη < 1a1
+ 1a2.
For any given value of γ and η, either smaller or larger than 1, it ispossible to find a1 and a2 sufficiently small, so that our stabilitycondition is satisfied, even for those values of γ and η that make thenonzero steady states in Tramontana et al. (2009) unstable.
When a1 or a2 are sufficiently small, the map ψ is strictly increasing.
This prevents the existence of interesting dynamics.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 106 / 139
![Page 314: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/314.jpg)
First applications: Heterogeneous Agents Models
Since for ψ(X ) = X + γa2
(a1+a2
a1 exp(−(ηX−σX 3))+a2− 1), we have
ψ′(X ) = 1− γa1a2(a1 + a2)(3σX 2 − η)
(a1 exp(−(ηX − σX 3)) + a2)2 exp(ηX − σX 3),
it holds that
ψ′(0) = 1 + γa1a2ηa1+a2
> 1, implying that X ∗ = 0 is always unstable.
ψ′(±√
ησ
)= 1− 2γη(
1a1
+ 1a2
) ∈ (−1,1) for γη < 1a1
+ 1a2.
For any given value of γ and η, either smaller or larger than 1, it ispossible to find a1 and a2 sufficiently small, so that our stabilitycondition is satisfied, even for those values of γ and η that make thenonzero steady states in Tramontana et al. (2009) unstable.
When a1 or a2 are sufficiently small, the map ψ is strictly increasing.
This prevents the existence of interesting dynamics.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 106 / 139
![Page 315: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/315.jpg)
First applications: Heterogeneous Agents Models
Since for ψ(X ) = X + γa2
(a1+a2
a1 exp(−(ηX−σX 3))+a2− 1), we have
ψ′(X ) = 1− γa1a2(a1 + a2)(3σX 2 − η)
(a1 exp(−(ηX − σX 3)) + a2)2 exp(ηX − σX 3),
it holds that
ψ′(0) = 1 + γa1a2ηa1+a2
> 1, implying that X ∗ = 0 is always unstable.
ψ′(±√
ησ
)= 1− 2γη(
1a1
+ 1a2
) ∈ (−1,1) for γη < 1a1
+ 1a2.
For any given value of γ and η, either smaller or larger than 1, it ispossible to find a1 and a2 sufficiently small, so that our stabilitycondition is satisfied, even for those values of γ and η that make thenonzero steady states in Tramontana et al. (2009) unstable.
When a1 or a2 are sufficiently small, the map ψ is strictly increasing.
This prevents the existence of interesting dynamics.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 106 / 139
![Page 316: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/316.jpg)
First applications: Heterogeneous Agents Models
Since for ψ(X ) = X + γa2
(a1+a2
a1 exp(−(ηX−σX 3))+a2− 1), we have
ψ′(X ) = 1− γa1a2(a1 + a2)(3σX 2 − η)
(a1 exp(−(ηX − σX 3)) + a2)2 exp(ηX − σX 3),
it holds that
ψ′(0) = 1 + γa1a2ηa1+a2
> 1, implying that X ∗ = 0 is always unstable.
ψ′(±√
ησ
)= 1− 2γη(
1a1
+ 1a2
) ∈ (−1,1) for γη < 1a1
+ 1a2.
For any given value of γ and η, either smaller or larger than 1, it ispossible to find a1 and a2 sufficiently small, so that our stabilitycondition is satisfied, even for those values of γ and η that make thenonzero steady states in Tramontana et al. (2009) unstable.
When a1 or a2 are sufficiently small, the map ψ is strictly increasing.
This prevents the existence of interesting dynamics.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 106 / 139
![Page 317: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/317.jpg)
First applications: Heterogeneous Agents Models
Since for ψ(X ) = X + γa2
(a1+a2
a1 exp(−(ηX−σX 3))+a2− 1), we have
ψ′(X ) = 1− γa1a2(a1 + a2)(3σX 2 − η)
(a1 exp(−(ηX − σX 3)) + a2)2 exp(ηX − σX 3),
it holds that
ψ′(0) = 1 + γa1a2ηa1+a2
> 1, implying that X ∗ = 0 is always unstable.
ψ′(±√
ησ
)= 1− 2γη(
1a1
+ 1a2
) ∈ (−1,1) for γη < 1a1
+ 1a2.
For any given value of γ and η, either smaller or larger than 1, it ispossible to find a1 and a2 sufficiently small, so that our stabilitycondition is satisfied, even for those values of γ and η that make thenonzero steady states in Tramontana et al. (2009) unstable.
When a1 or a2 are sufficiently small, the map ψ is strictly increasing.
This prevents the existence of interesting dynamics.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 106 / 139
![Page 318: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/318.jpg)
First applications: Heterogeneous Agents Models
However, for intermediate values of a1 or a2, it is possible that,although X ∗1 and X ∗3 are locally asymptotically stable, they coexist withperiodic or chaotic attractors.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 107 / 139
![Page 319: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/319.jpg)
First applications: Heterogeneous Agents Models
The bifurcation diagram w.r.t. a1 ∈ [1.3,2.8] for ψ with a2 = 2,γ = 2.14, η = 0.2, σ = 1, with initial conditions X (0) = 0.1 for the
green dots, X (0) = −0.1 for the red dots, X (0) = 1.26 for the blue dots
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 108 / 139
![Page 320: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/320.jpg)
First applications: Heterogeneous Agents Models
The graph of ψ for a1 = 2.3
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 109 / 139
![Page 321: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/321.jpg)
First applications: Heterogeneous Agents Models
The bifurcation diagram w.r.t. a1 ∈ [1,2.8] for ψ with a2 = 2,γ = 2.14, η = 0.65, σ = 1, with initial conditions X (0) = 0.1 for the
green dots, X (0) = −0.1 for the red dots, X (0) = 1.26 for the blue dots
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 110 / 139
![Page 322: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/322.jpg)
First applications: Heterogeneous Agents Models
2) The real sector
We consider a model with a Keynesian good market of a closedeconomy with public intervention.
The Keynesian equilibrium condition is given by
Y = C + I + G
with
I = I, G = G, C = C + cY ,
where Y is aggregate income, C is aggregate consumption, I isaggregate investment and G is government expenditure.Investment and government expenditures are exogenous and equal toI and G, respectively.In the consumption function, C is autonomous consumption andc ∈ (0,1) is the marginal propensity to consume.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 111 / 139
![Page 323: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/323.jpg)
First applications: Heterogeneous Agents Models
2) The real sector
We consider a model with a Keynesian good market of a closedeconomy with public intervention.
The Keynesian equilibrium condition is given by
Y = C + I + G
with
I = I, G = G, C = C + cY ,
where Y is aggregate income, C is aggregate consumption, I isaggregate investment and G is government expenditure.Investment and government expenditures are exogenous and equal toI and G, respectively.In the consumption function, C is autonomous consumption andc ∈ (0,1) is the marginal propensity to consume.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 111 / 139
![Page 324: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/324.jpg)
First applications: Heterogeneous Agents Models
2) The real sector
We consider a model with a Keynesian good market of a closedeconomy with public intervention.
The Keynesian equilibrium condition is given by
Y = C + I + G
with
I = I, G = G, C = C + cY ,
where Y is aggregate income, C is aggregate consumption, I isaggregate investment and G is government expenditure.Investment and government expenditures are exogenous and equal toI and G, respectively.In the consumption function, C is autonomous consumption andc ∈ (0,1) is the marginal propensity to consume.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 111 / 139
![Page 325: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/325.jpg)
First applications: Heterogeneous Agents Models
2) The real sector
We consider a model with a Keynesian good market of a closedeconomy with public intervention.
The Keynesian equilibrium condition is given by
Y = C + I + G
with
I = I, G = G, C = C + cY ,
where Y is aggregate income, C is aggregate consumption, I isaggregate investment and G is government expenditure.Investment and government expenditures are exogenous and equal toI and G, respectively.In the consumption function, C is autonomous consumption andc ∈ (0,1) is the marginal propensity to consume.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 111 / 139
![Page 326: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/326.jpg)
First applications: Heterogeneous Agents Models
2) The real sector
We consider a model with a Keynesian good market of a closedeconomy with public intervention.
The Keynesian equilibrium condition is given by
Y = C + I + G
with
I = I, G = G, C = C + cY ,
where Y is aggregate income, C is aggregate consumption, I isaggregate investment and G is government expenditure.Investment and government expenditures are exogenous and equal toI and G, respectively.In the consumption function, C is autonomous consumption andc ∈ (0,1) is the marginal propensity to consume.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 111 / 139
![Page 327: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/327.jpg)
First applications: Heterogeneous Agents Models
In a dynamic framework we assume a dependence of consumption attime t on the income in the same time period, i.e., Ct = C + cYt .
The dynamic behavior in the real economy is represented by anadjustment mechanism depending on the excess demand.
If aggregate excess demand is positive (negative), productionincreases (decreases), that is,
Yt+1 = Yt + µf (Dt ),
where
µ > 0 is the real market speed of adjustment between demandand supply;
f is an increasing function with f (0) = 0 and Dt = Zt − Yt is theexcess demand, with Zt the aggregate demand in a closedeconomy, defined as
Zt = Ct + It + Gt .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 112 / 139
![Page 328: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/328.jpg)
First applications: Heterogeneous Agents Models
In a dynamic framework we assume a dependence of consumption attime t on the income in the same time period, i.e., Ct = C + cYt .
The dynamic behavior in the real economy is represented by anadjustment mechanism depending on the excess demand.
If aggregate excess demand is positive (negative), productionincreases (decreases), that is,
Yt+1 = Yt + µf (Dt ),
where
µ > 0 is the real market speed of adjustment between demandand supply;
f is an increasing function with f (0) = 0 and Dt = Zt − Yt is theexcess demand, with Zt the aggregate demand in a closedeconomy, defined as
Zt = Ct + It + Gt .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 112 / 139
![Page 329: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/329.jpg)
First applications: Heterogeneous Agents Models
In a dynamic framework we assume a dependence of consumption attime t on the income in the same time period, i.e., Ct = C + cYt .
The dynamic behavior in the real economy is represented by anadjustment mechanism depending on the excess demand.
If aggregate excess demand is positive (negative), productionincreases (decreases), that is,
Yt+1 = Yt + µf (Dt ),
where
µ > 0 is the real market speed of adjustment between demandand supply;
f is an increasing function with f (0) = 0 and Dt = Zt − Yt is theexcess demand, with Zt the aggregate demand in a closedeconomy, defined as
Zt = Ct + It + Gt .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 112 / 139
![Page 330: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/330.jpg)
First applications: Heterogeneous Agents Models
In a dynamic framework we assume a dependence of consumption attime t on the income in the same time period, i.e., Ct = C + cYt .
The dynamic behavior in the real economy is represented by anadjustment mechanism depending on the excess demand.
If aggregate excess demand is positive (negative), productionincreases (decreases), that is,
Yt+1 = Yt + µf (Dt ),
where
µ > 0 is the real market speed of adjustment between demandand supply;
f is an increasing function with f (0) = 0 and Dt = Zt − Yt is theexcess demand, with Zt the aggregate demand in a closedeconomy, defined as
Zt = Ct + It + Gt .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 112 / 139
![Page 331: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/331.jpg)
First applications: Heterogeneous Agents Models
In a dynamic framework we assume a dependence of consumption attime t on the income in the same time period, i.e., Ct = C + cYt .
The dynamic behavior in the real economy is represented by anadjustment mechanism depending on the excess demand.
If aggregate excess demand is positive (negative), productionincreases (decreases), that is,
Yt+1 = Yt + µf (Dt ),
where
µ > 0 is the real market speed of adjustment between demandand supply;
f is an increasing function with f (0) = 0 and Dt = Zt − Yt is theexcess demand, with Zt the aggregate demand in a closedeconomy, defined as
Zt = Ct + It + Gt .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 112 / 139
![Page 332: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/332.jpg)
First applications: Heterogeneous Agents Models
For any such map f , the unique steady state, corresponding to Dt = 0,is given by
Y ∗ =A
1− cwhere A = C + I + G is aggregate autonomous expenditure and 1
1−c isthe Keynesian multiplier.
Imposing a linear adjustment mechanism, we obtain
Yt+1 = Yt +µ(Zt−Yt ) = Yt +µ(C+I+G−(1−c)Yt ) = Yt +µ(A−(1−c)Yt ).
In order to have a converging behavior towards Y ∗, we need
−1 < 1− µ(1− c) < 1,
which is satisfied for µ < µ = 21−c .
For larger values of µ we have instead a diverging behavior, while forµ = µ we have period-two cycles.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 113 / 139
![Page 333: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/333.jpg)
First applications: Heterogeneous Agents Models
For any such map f , the unique steady state, corresponding to Dt = 0,is given by
Y ∗ =A
1− cwhere A = C + I + G is aggregate autonomous expenditure and 1
1−c isthe Keynesian multiplier.
Imposing a linear adjustment mechanism, we obtain
Yt+1 = Yt +µ(Zt−Yt ) = Yt +µ(C+I+G−(1−c)Yt ) = Yt +µ(A−(1−c)Yt ).
In order to have a converging behavior towards Y ∗, we need
−1 < 1− µ(1− c) < 1,
which is satisfied for µ < µ = 21−c .
For larger values of µ we have instead a diverging behavior, while forµ = µ we have period-two cycles.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 113 / 139
![Page 334: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/334.jpg)
First applications: Heterogeneous Agents Models
For any such map f , the unique steady state, corresponding to Dt = 0,is given by
Y ∗ =A
1− cwhere A = C + I + G is aggregate autonomous expenditure and 1
1−c isthe Keynesian multiplier.
Imposing a linear adjustment mechanism, we obtain
Yt+1 = Yt +µ(Zt−Yt ) = Yt +µ(C+I+G−(1−c)Yt ) = Yt +µ(A−(1−c)Yt ).
In order to have a converging behavior towards Y ∗, we need
−1 < 1− µ(1− c) < 1,
which is satisfied for µ < µ = 21−c .
For larger values of µ we have instead a diverging behavior, while forµ = µ we have period-two cycles.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 113 / 139
![Page 335: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/335.jpg)
First applications: Heterogeneous Agents Models
For any such map f , the unique steady state, corresponding to Dt = 0,is given by
Y ∗ =A
1− cwhere A = C + I + G is aggregate autonomous expenditure and 1
1−c isthe Keynesian multiplier.
Imposing a linear adjustment mechanism, we obtain
Yt+1 = Yt +µ(Zt−Yt ) = Yt +µ(C+I+G−(1−c)Yt ) = Yt +µ(A−(1−c)Yt ).
In order to have a converging behavior towards Y ∗, we need
−1 < 1− µ(1− c) < 1,
which is satisfied for µ < µ = 21−c .
For larger values of µ we have instead a diverging behavior, while forµ = µ we have period-two cycles.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 113 / 139
![Page 336: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/336.jpg)
First applications: Heterogeneous Agents Models
For any such map f , the unique steady state, corresponding to Dt = 0,is given by
Y ∗ =A
1− cwhere A = C + I + G is aggregate autonomous expenditure and 1
1−c isthe Keynesian multiplier.
Imposing a linear adjustment mechanism, we obtain
Yt+1 = Yt +µ(Zt−Yt ) = Yt +µ(C+I+G−(1−c)Yt ) = Yt +µ(A−(1−c)Yt ).
In order to have a converging behavior towards Y ∗, we need
−1 < 1− µ(1− c) < 1,
which is satisfied for µ < µ = 21−c .
For larger values of µ we have instead a diverging behavior, while forµ = µ we have period-two cycles.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 113 / 139
![Page 337: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/337.jpg)
First applications: Heterogeneous Agents Models
With the linear formulation, when Dt limits to ±∞, the same doesYt+1 − Yt .
However, this is an unrealistic assumption because of the materialconstraints in the production side of an economy.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 114 / 139
![Page 338: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/338.jpg)
First applications: Heterogeneous Agents Models
With the linear formulation, when Dt limits to ±∞, the same doesYt+1 − Yt .
However, this is an unrealistic assumption because of the materialconstraints in the production side of an economy.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 114 / 139
![Page 339: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/339.jpg)
First applications: Heterogeneous Agents Models
Assuming instead, like in Naimzada and Pireddu (2014a), that theadjustment mechanism is S-shaped, we specify the function f as
f (Dt ) = a2
(a1 + a2
a1e−Dt + a2− 1),
with a1,a2 positive parameters.
Hence, f is bounded from below by −a2 and from above by a1.
Thus the income variations are gradual and this prevents the realmarket from diverging and it may create a real oscillator.
Namely, more realistic assumptions lead in this case to more realisticoutcomes.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 115 / 139
![Page 340: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/340.jpg)
First applications: Heterogeneous Agents Models
Assuming instead, like in Naimzada and Pireddu (2014a), that theadjustment mechanism is S-shaped, we specify the function f as
f (Dt ) = a2
(a1 + a2
a1e−Dt + a2− 1),
with a1,a2 positive parameters.
Hence, f is bounded from below by −a2 and from above by a1.
Thus the income variations are gradual and this prevents the realmarket from diverging and it may create a real oscillator.
Namely, more realistic assumptions lead in this case to more realisticoutcomes.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 115 / 139
![Page 341: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/341.jpg)
First applications: Heterogeneous Agents Models
Assuming instead, like in Naimzada and Pireddu (2014a), that theadjustment mechanism is S-shaped, we specify the function f as
f (Dt ) = a2
(a1 + a2
a1e−Dt + a2− 1),
with a1,a2 positive parameters.
Hence, f is bounded from below by −a2 and from above by a1.
Thus the income variations are gradual and this prevents the realmarket from diverging and it may create a real oscillator.
Namely, more realistic assumptions lead in this case to more realisticoutcomes.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 115 / 139
![Page 342: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/342.jpg)
First applications: Heterogeneous Agents Models
Assuming instead, like in Naimzada and Pireddu (2014a), that theadjustment mechanism is S-shaped, we specify the function f as
f (Dt ) = a2
(a1 + a2
a1e−Dt + a2− 1),
with a1,a2 positive parameters.
Hence, f is bounded from below by −a2 and from above by a1.
Thus the income variations are gradual and this prevents the realmarket from diverging and it may create a real oscillator.
Namely, more realistic assumptions lead in this case to more realisticoutcomes.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 115 / 139
![Page 343: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/343.jpg)
First applications: Heterogeneous Agents Models
The dynamic equation of the real market in the nonlinear framework isgiven by
Yt+1 =Yt +µa2
(a1 + a2
a1e−Dt + a2− 1)
=Yt +µa2
(a1 + a2
a1e−(A−Yt (1−c)) + a2− 1).
The unique steady state is still Y ∗ = A1−c .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 116 / 139
![Page 344: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/344.jpg)
First applications: Heterogeneous Agents Models
The dynamic equation of the real market in the nonlinear framework isgiven by
Yt+1 =Yt +µa2
(a1 + a2
a1e−Dt + a2− 1)
=Yt +µa2
(a1 + a2
a1e−(A−Yt (1−c)) + a2− 1).
The unique steady state is still Y ∗ = A1−c .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 116 / 139
![Page 345: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/345.jpg)
First applications: Heterogeneous Agents Models
Setting Φ(Y ) = Y + µa2
(a1+a2
a1e−(A−Y (1−c))+a2− 1), we have
Φ′(Y ∗) = 1− µa1a2(1− c)
a1 + a2∈ (−1,1) for
µ < µ =2
1− c
(1a1
+1a2
).
We notice that µ = 21−c < µ when a1 and a2 are small enough.
Indeed, when reducing a1 and a2, we decrease the current variation ofoutput, enlarging the stability region.
With the introduction of the sigmoidal adjustment mechanism, in theinstability regime we have the emergence of an absorbing interval, i.e.,an invariant interval which eventually captures all forward trajectories.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 117 / 139
![Page 346: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/346.jpg)
First applications: Heterogeneous Agents Models
Setting Φ(Y ) = Y + µa2
(a1+a2
a1e−(A−Y (1−c))+a2− 1), we have
Φ′(Y ∗) = 1− µa1a2(1− c)
a1 + a2∈ (−1,1) for
µ < µ =2
1− c
(1a1
+1a2
).
We notice that µ = 21−c < µ when a1 and a2 are small enough.
Indeed, when reducing a1 and a2, we decrease the current variation ofoutput, enlarging the stability region.
With the introduction of the sigmoidal adjustment mechanism, in theinstability regime we have the emergence of an absorbing interval, i.e.,an invariant interval which eventually captures all forward trajectories.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 117 / 139
![Page 347: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/347.jpg)
First applications: Heterogeneous Agents Models
Setting Φ(Y ) = Y + µa2
(a1+a2
a1e−(A−Y (1−c))+a2− 1), we have
Φ′(Y ∗) = 1− µa1a2(1− c)
a1 + a2∈ (−1,1) for
µ < µ =2
1− c
(1a1
+1a2
).
We notice that µ = 21−c < µ when a1 and a2 are small enough.
Indeed, when reducing a1 and a2, we decrease the current variation ofoutput, enlarging the stability region.
With the introduction of the sigmoidal adjustment mechanism, in theinstability regime we have the emergence of an absorbing interval, i.e.,an invariant interval which eventually captures all forward trajectories.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 117 / 139
![Page 348: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/348.jpg)
First applications: Heterogeneous Agents Models
Setting Φ(Y ) = Y + µa2
(a1+a2
a1e−(A−Y (1−c))+a2− 1), we have
Φ′(Y ∗) = 1− µa1a2(1− c)
a1 + a2∈ (−1,1) for
µ < µ =2
1− c
(1a1
+1a2
).
We notice that µ = 21−c < µ when a1 and a2 are small enough.
Indeed, when reducing a1 and a2, we decrease the current variation ofoutput, enlarging the stability region.
With the introduction of the sigmoidal adjustment mechanism, in theinstability regime we have the emergence of an absorbing interval, i.e.,an invariant interval which eventually captures all forward trajectories.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 117 / 139
![Page 349: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/349.jpg)
First applications: Heterogeneous Agents Models
The bifurcation diagram w.r.t. µ ∈ [0,1] for the map Φ with A = 12,a1 = 50, a2 = 11 and c = 0.6
We observe a cascade of period-doubling bifurcations leading tochaos.The chaotic regime is interrupted, e.g., by a period-three periodicitywindow.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 118 / 139
![Page 350: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/350.jpg)
First applications: Heterogeneous Agents Models
The bifurcation diagram w.r.t. µ ∈ [0,1] for the map Φ with A = 12,a1 = 50, a2 = 11 and c = 0.6
We observe a cascade of period-doubling bifurcations leading tochaos.The chaotic regime is interrupted, e.g., by a period-three periodicitywindow.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 118 / 139
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First applications: Heterogeneous Agents Models
The bifurcation diagram w.r.t. µ ∈ [0,1] for the map Φ with A = 12,a1 = 50, a2 = 11 and c = 0.6
We observe a cascade of period-doubling bifurcations leading tochaos.The chaotic regime is interrupted, e.g., by a period-three periodicitywindow.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 118 / 139
![Page 352: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/352.jpg)
First applications: Heterogeneous Agents Models
3) Real and financial sectors: the interaction degreeapproach
We start presenting the model in Westerhoff (2012).
The real sector coincides con the linear framework presented above,but now private expenditure also increases with the stock price P.
Hence:I = I, G = G, Ct = C + cYt + αPt ,where c ∈ (0,1) is the marginal propensity to consume and invest fromcurrent income and α ∈ (0,1) is the marginal propensity to consumeand invest from current stock market wealth.
Imposing a linear adjustment mechanism and setting µ = 1,Westerhoff (2012) obtains
Yt+1 = Yt + µ(Zt − Yt ) = Yt + µ(C + I + G − (1− c)Yt + αPt )= Yt + µ(A− (1− c)Yt + αPt ) = A + cYt + αPt .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 119 / 139
![Page 353: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/353.jpg)
First applications: Heterogeneous Agents Models
3) Real and financial sectors: the interaction degreeapproach
We start presenting the model in Westerhoff (2012).
The real sector coincides con the linear framework presented above,but now private expenditure also increases with the stock price P.
Hence:I = I, G = G, Ct = C + cYt + αPt ,where c ∈ (0,1) is the marginal propensity to consume and invest fromcurrent income and α ∈ (0,1) is the marginal propensity to consumeand invest from current stock market wealth.
Imposing a linear adjustment mechanism and setting µ = 1,Westerhoff (2012) obtains
Yt+1 = Yt + µ(Zt − Yt ) = Yt + µ(C + I + G − (1− c)Yt + αPt )= Yt + µ(A− (1− c)Yt + αPt ) = A + cYt + αPt .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 119 / 139
![Page 354: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/354.jpg)
First applications: Heterogeneous Agents Models
3) Real and financial sectors: the interaction degreeapproach
We start presenting the model in Westerhoff (2012).
The real sector coincides con the linear framework presented above,but now private expenditure also increases with the stock price P.
Hence:I = I, G = G, Ct = C + cYt + αPt ,where c ∈ (0,1) is the marginal propensity to consume and invest fromcurrent income and α ∈ (0,1) is the marginal propensity to consumeand invest from current stock market wealth.
Imposing a linear adjustment mechanism and setting µ = 1,Westerhoff (2012) obtains
Yt+1 = Yt + µ(Zt − Yt ) = Yt + µ(C + I + G − (1− c)Yt + αPt )= Yt + µ(A− (1− c)Yt + αPt ) = A + cYt + αPt .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 119 / 139
![Page 355: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/355.jpg)
First applications: Heterogeneous Agents Models
3) Real and financial sectors: the interaction degreeapproach
We start presenting the model in Westerhoff (2012).
The real sector coincides con the linear framework presented above,but now private expenditure also increases with the stock price P.
Hence:I = I, G = G, Ct = C + cYt + αPt ,where c ∈ (0,1) is the marginal propensity to consume and invest fromcurrent income and α ∈ (0,1) is the marginal propensity to consumeand invest from current stock market wealth.
Imposing a linear adjustment mechanism and setting µ = 1,Westerhoff (2012) obtains
Yt+1 = Yt + µ(Zt − Yt ) = Yt + µ(C + I + G − (1− c)Yt + αPt )= Yt + µ(A− (1− c)Yt + αPt ) = A + cYt + αPt .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 119 / 139
![Page 356: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/356.jpg)
First applications: Heterogeneous Agents Models
3) Real and financial sectors: the interaction degreeapproach
We start presenting the model in Westerhoff (2012).
The real sector coincides con the linear framework presented above,but now private expenditure also increases with the stock price P.
Hence:I = I, G = G, Ct = C + cYt + αPt ,where c ∈ (0,1) is the marginal propensity to consume and invest fromcurrent income and α ∈ (0,1) is the marginal propensity to consumeand invest from current stock market wealth.
Imposing a linear adjustment mechanism and setting µ = 1,Westerhoff (2012) obtains
Yt+1 = Yt + µ(Zt − Yt ) = Yt + µ(C + I + G − (1− c)Yt + αPt )= Yt + µ(A− (1− c)Yt + αPt ) = A + cYt + αPt .
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 119 / 139
![Page 357: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/357.jpg)
First applications: Heterogeneous Agents Models
The financial sector in Westerhoff (2012) coincides with that inTramontana et al. (2009), when setting γ = 1 and replacing F with
Ft = dYt ,
where d > 0 is a parameter capturing the relationship between thenational income and the perceived fundamental stock market value.
The dynamic equation of the stock market is then:
Pt+1 = Pt +γ(η(Pt−Ft )+σ(Ft−Pt )3) = Pt +η(Pt−dYt )+σ(dYt−Pt )
3.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 120 / 139
![Page 358: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/358.jpg)
First applications: Heterogeneous Agents Models
The financial sector in Westerhoff (2012) coincides with that inTramontana et al. (2009), when setting γ = 1 and replacing F with
Ft = dYt ,
where d > 0 is a parameter capturing the relationship between thenational income and the perceived fundamental stock market value.
The dynamic equation of the stock market is then:
Pt+1 = Pt +γ(η(Pt−Ft )+σ(Ft−Pt )3) = Pt +η(Pt−dYt )+σ(dYt−Pt )
3.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 120 / 139
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First applications: Heterogeneous Agents Models
Proposition (isolated goods and stock markets)
Suppose first that Pt = P. National income is then driven by theone-dimensional linear map Yt+1 = A + cYt + αP. Its unique steadystate Y ∗ = (A + αP)/(1− c) is positive and globally asymptoticallystable.Suppose now that Yt = Y . The stock price is then determined by theone-dimensional nonlinear map Pt+1 = Pt + η(Pt − dY ) +σ(dY −Pt )
3.There are three coexisting steady states P∗1 = dY and
P∗2,3 = P∗1 ±√
ησ . Steady state P∗1 is positive, yet unstable. Steady
states P∗2,3 are positive for dY >√
ησ and locally stable for η < 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 121 / 139
![Page 360: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/360.jpg)
First applications: Heterogeneous Agents Models
Proposition (isolated goods and stock markets)
Suppose first that Pt = P. National income is then driven by theone-dimensional linear map Yt+1 = A + cYt + αP. Its unique steadystate Y ∗ = (A + αP)/(1− c) is positive and globally asymptoticallystable.Suppose now that Yt = Y . The stock price is then determined by theone-dimensional nonlinear map Pt+1 = Pt + η(Pt − dY ) +σ(dY −Pt )
3.There are three coexisting steady states P∗1 = dY and
P∗2,3 = P∗1 ±√
ησ . Steady state P∗1 is positive, yet unstable. Steady
states P∗2,3 are positive for dY >√
ησ and locally stable for η < 1.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 121 / 139
![Page 361: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/361.jpg)
First applications: Heterogeneous Agents Models
Setting Pt = P, the goods market is decoupled by the financial market.
Setting Yt = Y , the financial market is decoupled by the real market.
In this case, the system{Yt+1 = A + cYt + αP,
Pt+1 = Pt + η(Pt − dY ) + σ(dY − Pt )3,
is composed by two independent equations.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 122 / 139
![Page 362: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/362.jpg)
First applications: Heterogeneous Agents Models
Setting Pt = P, the goods market is decoupled by the financial market.
Setting Yt = Y , the financial market is decoupled by the real market.
In this case, the system{Yt+1 = A + cYt + αP,
Pt+1 = Pt + η(Pt − dY ) + σ(dY − Pt )3,
is composed by two independent equations.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 122 / 139
![Page 363: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/363.jpg)
First applications: Heterogeneous Agents Models
Setting Pt = P, the goods market is decoupled by the financial market.
Setting Yt = Y , the financial market is decoupled by the real market.
In this case, the system{Yt+1 = A + cYt + αP,
Pt+1 = Pt + η(Pt − dY ) + σ(dY − Pt )3,
is composed by two independent equations.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 122 / 139
![Page 364: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/364.jpg)
First applications: Heterogeneous Agents Models
However, when Yt+1 depends on Pt and Pt+1 depends on Yt , themodel in Westerhoff (2012) is 2D:{
Yt+1 = A + cYt + αPt ,
Pt+1 = Pt + η(Pt − dYt ) + σ(dYt − Pt )3.
In this case, goods and stock markets are interacting.
How do we study it? −→ Analysis of 2D discrete dynamical systems.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 123 / 139
![Page 365: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/365.jpg)
First applications: Heterogeneous Agents Models
However, when Yt+1 depends on Pt and Pt+1 depends on Yt , themodel in Westerhoff (2012) is 2D:{
Yt+1 = A + cYt + αPt ,
Pt+1 = Pt + η(Pt − dYt ) + σ(dYt − Pt )3.
In this case, goods and stock markets are interacting.
How do we study it? −→ Analysis of 2D discrete dynamical systems.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 123 / 139
![Page 366: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/366.jpg)
First applications: Heterogeneous Agents Models
However, when Yt+1 depends on Pt and Pt+1 depends on Yt , themodel in Westerhoff (2012) is 2D:{
Yt+1 = A + cYt + αPt ,
Pt+1 = Pt + η(Pt − dYt ) + σ(dYt − Pt )3.
In this case, goods and stock markets are interacting.
How do we study it? −→ Analysis of 2D discrete dynamical systems.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 123 / 139
![Page 367: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/367.jpg)
First applications: Heterogeneous Agents Models
However, when Yt+1 depends on Pt and Pt+1 depends on Yt , themodel in Westerhoff (2012) is 2D:{
Yt+1 = A + cYt + αPt ,
Pt+1 = Pt + η(Pt − dYt ) + σ(dYt − Pt )3.
In this case, goods and stock markets are interacting.
How do we study it? −→ Analysis of 2D discrete dynamical systems.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 123 / 139
![Page 368: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/368.jpg)
First applications: Heterogeneous Agents Models
However, when Yt+1 depends on Pt and Pt+1 depends on Yt , themodel in Westerhoff (2012) is 2D:{
Yt+1 = A + cYt + αPt ,
Pt+1 = Pt + η(Pt − dYt ) + σ(dYt − Pt )3.
In this case, goods and stock markets are interacting.
How do we study it? −→ Analysis of 2D discrete dynamical systems.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 123 / 139
![Page 369: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/369.jpg)
First applications: Heterogeneous Agents Models
Introducing the interaction degree ω ∈ [0,1], we could see the twoframeworks above as the extreme cases of
{Yt+1=A + cYt + α(ωPt + (1− ω)P),
Pt+1=Pt + η(Pt − d(ωYt + (1− ω)Y )) + σ(d(ωYt + (1− ω)Y )− Pt )3.
For ω = 0 we obtain the isolated markets framework;
for ω = 1 we obtain the fully interacting markets framework;
for ω ∈ (0,1) we obtain a partial interaction between the two markets.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 124 / 139
![Page 370: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/370.jpg)
First applications: Heterogeneous Agents Models
Introducing the interaction degree ω ∈ [0,1], we could see the twoframeworks above as the extreme cases of
{Yt+1=A + cYt + α(ωPt + (1− ω)P),
Pt+1=Pt + η(Pt − d(ωYt + (1− ω)Y )) + σ(d(ωYt + (1− ω)Y )− Pt )3.
For ω = 0 we obtain the isolated markets framework;
for ω = 1 we obtain the fully interacting markets framework;
for ω ∈ (0,1) we obtain a partial interaction between the two markets.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 124 / 139
![Page 371: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/371.jpg)
First applications: Heterogeneous Agents Models
Introducing the interaction degree ω ∈ [0,1], we could see the twoframeworks above as the extreme cases of
{Yt+1=A + cYt + α(ωPt + (1− ω)P),
Pt+1=Pt + η(Pt − d(ωYt + (1− ω)Y )) + σ(d(ωYt + (1− ω)Y )− Pt )3.
For ω = 0 we obtain the isolated markets framework;
for ω = 1 we obtain the fully interacting markets framework;
for ω ∈ (0,1) we obtain a partial interaction between the two markets.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 124 / 139
![Page 372: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/372.jpg)
First applications: Heterogeneous Agents Models
Introducing the interaction degree ω ∈ [0,1], we could see the twoframeworks above as the extreme cases of
{Yt+1=A + cYt + α(ωPt + (1− ω)P),
Pt+1=Pt + η(Pt − d(ωYt + (1− ω)Y )) + σ(d(ωYt + (1− ω)Y )− Pt )3.
For ω = 0 we obtain the isolated markets framework;
for ω = 1 we obtain the fully interacting markets framework;
for ω ∈ (0,1) we obtain a partial interaction between the two markets.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 124 / 139
![Page 373: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/373.jpg)
First applications: Heterogeneous Agents Models
Rmk: ω may be used as bifurcation parameter to show the role, on thesystem dynamics, of an increasing degree of interaction betweenmarkets.
Let us show the bifurcation diagrams w.r.t. ω ∈ [0,1] of the map Fωassociated to:
{Yt+1 =A + cYt + α(ωPt + (1− ω)P),
Pt+1 =Pt + η(Pt − d(ωYt + (1− ω)Y )) + σ(d(ωYt + (1− ω)Y )− Pt )3
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 125 / 139
![Page 374: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/374.jpg)
First applications: Heterogeneous Agents Models
Rmk: ω may be used as bifurcation parameter to show the role, on thesystem dynamics, of an increasing degree of interaction betweenmarkets.
Let us show the bifurcation diagrams w.r.t. ω ∈ [0,1] of the map Fωassociated to:
{Yt+1 =A + cYt + α(ωPt + (1− ω)P),
Pt+1 =Pt + η(Pt − d(ωYt + (1− ω)Y )) + σ(d(ωYt + (1− ω)Y )− Pt )3
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 125 / 139
![Page 375: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/375.jpg)
First applications: Heterogeneous Agents Models
The bifurcation diagram for Y and P w.r.t. ω ∈ [0,1] of the map Fωwhen A = 3, c = 0.95, α = 0.02, d = 1, η = 1.63, σ = 0.3
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 126 / 139
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First applications: Heterogeneous Agents Models
For the parameter values considered in Westerhoff (2012), raising theinterconnection between markets destabilizes Y ∗ and leads toincreasing income oscillations.
Since η > 1 all equilibria of the isolated stock market are unstable.Raising the interconnection between markets slightly increases themodulus of oscillations.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 127 / 139
![Page 377: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/377.jpg)
First applications: Heterogeneous Agents Models
For the parameter values considered in Westerhoff (2012), raising theinterconnection between markets destabilizes Y ∗ and leads toincreasing income oscillations.
Since η > 1 all equilibria of the isolated stock market are unstable.Raising the interconnection between markets slightly increases themodulus of oscillations.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 127 / 139
![Page 378: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/378.jpg)
First applications: Heterogeneous Agents Models
A last 1D framework:the model in Naimzada and Pireddu (2014b)
The real and the financial sectors can be “integrated” −→ the resultingsetting is 1D.
In regard to the real side of the economy, we consider
Yt+1 = Yt + µf (Zt − Yt ),
wheref (Zt − Yt ) = a2
(a1+a2
a1e−(Zt−Yt )+a2− 1), with a1,a2 positive
parameters;
the aggregate demand in a closed economy is given byZt = Ct + It + Gt = A + cYt + αPt .
Similarly to Westerhoff (2012), we assume that private expenditureincreases with the belief about the stock price performance
Pt = (1− ω)P + ωPt , ω ∈ [0,1].
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 128 / 139
![Page 379: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/379.jpg)
First applications: Heterogeneous Agents Models
A last 1D framework:the model in Naimzada and Pireddu (2014b)
The real and the financial sectors can be “integrated” −→ the resultingsetting is 1D.
In regard to the real side of the economy, we consider
Yt+1 = Yt + µf (Zt − Yt ),
wheref (Zt − Yt ) = a2
(a1+a2
a1e−(Zt−Yt )+a2− 1), with a1,a2 positive
parameters;
the aggregate demand in a closed economy is given byZt = Ct + It + Gt = A + cYt + αPt .
Similarly to Westerhoff (2012), we assume that private expenditureincreases with the belief about the stock price performance
Pt = (1− ω)P + ωPt , ω ∈ [0,1].
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 128 / 139
![Page 380: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/380.jpg)
First applications: Heterogeneous Agents Models
A last 1D framework:the model in Naimzada and Pireddu (2014b)
The real and the financial sectors can be “integrated” −→ the resultingsetting is 1D.
In regard to the real side of the economy, we consider
Yt+1 = Yt + µf (Zt − Yt ),
wheref (Zt − Yt ) = a2
(a1+a2
a1e−(Zt−Yt )+a2− 1), with a1,a2 positive
parameters;
the aggregate demand in a closed economy is given byZt = Ct + It + Gt = A + cYt + αPt .
Similarly to Westerhoff (2012), we assume that private expenditureincreases with the belief about the stock price performance
Pt = (1− ω)P + ωPt , ω ∈ [0,1].
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 128 / 139
![Page 381: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/381.jpg)
First applications: Heterogeneous Agents Models
A last 1D framework:the model in Naimzada and Pireddu (2014b)
The real and the financial sectors can be “integrated” −→ the resultingsetting is 1D.
In regard to the real side of the economy, we consider
Yt+1 = Yt + µf (Zt − Yt ),
wheref (Zt − Yt ) = a2
(a1+a2
a1e−(Zt−Yt )+a2− 1), with a1,a2 positive
parameters;
the aggregate demand in a closed economy is given byZt = Ct + It + Gt = A + cYt + αPt .
Similarly to Westerhoff (2012), we assume that private expenditureincreases with the belief about the stock price performance
Pt = (1− ω)P + ωPt , ω ∈ [0,1].
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 128 / 139
![Page 382: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/382.jpg)
First applications: Heterogeneous Agents Models
A last 1D framework:the model in Naimzada and Pireddu (2014b)
The real and the financial sectors can be “integrated” −→ the resultingsetting is 1D.
In regard to the real side of the economy, we consider
Yt+1 = Yt + µf (Zt − Yt ),
wheref (Zt − Yt ) = a2
(a1+a2
a1e−(Zt−Yt )+a2− 1), with a1,a2 positive
parameters;
the aggregate demand in a closed economy is given byZt = Ct + It + Gt = A + cYt + αPt .
Similarly to Westerhoff (2012), we assume that private expenditureincreases with the belief about the stock price performance
Pt = (1− ω)P + ωPt , ω ∈ [0,1].
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 128 / 139
![Page 383: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/383.jpg)
First applications: Heterogeneous Agents Models
A last 1D framework:the model in Naimzada and Pireddu (2014b)
The real and the financial sectors can be “integrated” −→ the resultingsetting is 1D.
In regard to the real side of the economy, we consider
Yt+1 = Yt + µf (Zt − Yt ),
wheref (Zt − Yt ) = a2
(a1+a2
a1e−(Zt−Yt )+a2− 1), with a1,a2 positive
parameters;
the aggregate demand in a closed economy is given byZt = Ct + It + Gt = A + cYt + αPt .
Similarly to Westerhoff (2012), we assume that private expenditureincreases with the belief about the stock price performance
Pt = (1− ω)P + ωPt , ω ∈ [0,1].
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 128 / 139
![Page 384: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/384.jpg)
First applications: Heterogeneous Agents Models
For the financial sector, we consider the framework with chartists andfundamentalists in Tramontana et al. (2009) and in Westerhoff (2012),but with a linear demand for fundamentalists, too.
Pt+1 = Pt + γ(DCt + DF
t ) = Pt + γ(η(Pt − Ft ) + σ(Ft − Pt )).
Similarly to Westerhoff (2012), we suppose that speculators perceivethe following relation between the fundamental value and a proxy Yt ofnational income
Ft = dYt ,
where d > 0 is a parameter capturing the above described directrelationship.
We suppose that
Yt = ωYt + (1− ω)Y , ω ∈ [0,1].
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 129 / 139
![Page 385: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/385.jpg)
First applications: Heterogeneous Agents Models
For the financial sector, we consider the framework with chartists andfundamentalists in Tramontana et al. (2009) and in Westerhoff (2012),but with a linear demand for fundamentalists, too.
Pt+1 = Pt + γ(DCt + DF
t ) = Pt + γ(η(Pt − Ft ) + σ(Ft − Pt )).
Similarly to Westerhoff (2012), we suppose that speculators perceivethe following relation between the fundamental value and a proxy Yt ofnational income
Ft = dYt ,
where d > 0 is a parameter capturing the above described directrelationship.
We suppose that
Yt = ωYt + (1− ω)Y , ω ∈ [0,1].
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 129 / 139
![Page 386: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/386.jpg)
First applications: Heterogeneous Agents Models
For the financial sector, we consider the framework with chartists andfundamentalists in Tramontana et al. (2009) and in Westerhoff (2012),but with a linear demand for fundamentalists, too.
Pt+1 = Pt + γ(DCt + DF
t ) = Pt + γ(η(Pt − Ft ) + σ(Ft − Pt )).
Similarly to Westerhoff (2012), we suppose that speculators perceivethe following relation between the fundamental value and a proxy Yt ofnational income
Ft = dYt ,
where d > 0 is a parameter capturing the above described directrelationship.
We suppose that
Yt = ωYt + (1− ω)Y , ω ∈ [0,1].
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 129 / 139
![Page 387: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/387.jpg)
First applications: Heterogeneous Agents Models
For the financial sector, we consider the framework with chartists andfundamentalists in Tramontana et al. (2009) and in Westerhoff (2012),but with a linear demand for fundamentalists, too.
Pt+1 = Pt + γ(DCt + DF
t ) = Pt + γ(η(Pt − Ft ) + σ(Ft − Pt )).
Similarly to Westerhoff (2012), we suppose that speculators perceivethe following relation between the fundamental value and a proxy Yt ofnational income
Ft = dYt ,
where d > 0 is a parameter capturing the above described directrelationship.
We suppose that
Yt = ωYt + (1− ω)Y , ω ∈ [0,1].
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 129 / 139
![Page 388: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/388.jpg)
First applications: Heterogeneous Agents Models
Hence, the dynamic equation of the stock market is given by:
Pt+1 = Pt +γ(η(Pt−d(ωYt + (1− ω)Y ))+σ(d(ωYt + (1− ω)Y )−Pt )).
Since the functioning of financial markets is such that their priceadjustment mechanism is much faster than the mechanism ofadjustment of good market prices, we assume that γ → +∞.
Thus, we obtain the equilibrium condition
0 = limγ→+∞
Pt+1 − Pt
γ= η(Pt−d(ωYt +(1−ω)Y ))+σ(d(ωYt +(1−ω)Y )−Pt ),
from whichPt = d [ωYt + (1− ω)Y ].
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 130 / 139
![Page 389: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/389.jpg)
First applications: Heterogeneous Agents Models
Hence, the dynamic equation of the stock market is given by:
Pt+1 = Pt +γ(η(Pt−d(ωYt + (1− ω)Y ))+σ(d(ωYt + (1− ω)Y )−Pt )).
Since the functioning of financial markets is such that their priceadjustment mechanism is much faster than the mechanism ofadjustment of good market prices, we assume that γ → +∞.
Thus, we obtain the equilibrium condition
0 = limγ→+∞
Pt+1 − Pt
γ= η(Pt−d(ωYt +(1−ω)Y ))+σ(d(ωYt +(1−ω)Y )−Pt ),
from whichPt = d [ωYt + (1− ω)Y ].
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 130 / 139
![Page 390: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/390.jpg)
First applications: Heterogeneous Agents Models
Hence, the dynamic equation of the stock market is given by:
Pt+1 = Pt +γ(η(Pt−d(ωYt + (1− ω)Y ))+σ(d(ωYt + (1− ω)Y )−Pt )).
Since the functioning of financial markets is such that their priceadjustment mechanism is much faster than the mechanism ofadjustment of good market prices, we assume that γ → +∞.
Thus, we obtain the equilibrium condition
0 = limγ→+∞
Pt+1 − Pt
γ= η(Pt−d(ωYt +(1−ω)Y ))+σ(d(ωYt +(1−ω)Y )−Pt ),
from whichPt = d [ωYt + (1− ω)Y ].
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 130 / 139
![Page 391: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/391.jpg)
First applications: Heterogeneous Agents Models
Hence, the dynamic equation of the stock market is given by:
Pt+1 = Pt +γ(η(Pt−d(ωYt + (1− ω)Y ))+σ(d(ωYt + (1− ω)Y )−Pt )).
Since the functioning of financial markets is such that their priceadjustment mechanism is much faster than the mechanism ofadjustment of good market prices, we assume that γ → +∞.
Thus, we obtain the equilibrium condition
0 = limγ→+∞
Pt+1 − Pt
γ= η(Pt−d(ωYt +(1−ω)Y ))+σ(d(ωYt +(1−ω)Y )−Pt ),
from whichPt = d [ωYt + (1− ω)Y ].
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 130 / 139
![Page 392: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/392.jpg)
First applications: Heterogeneous Agents Models
We then find the integrated equation
Yt+1 = Yt +µa2
(a1 + a2
a1e−(A+cYt+α((1−ω)P+ω(d [ωYt+(1−ω)Y ]))−Yt ) + a2− 1).
We stress that for ω = 0 we obtain
Yt+1 = Yt + µa2
(a1 + a2
a1e−(A−Yt (1−c)+αP) + a2− 1),
very similar to the model studied in Naimada and Pireddu (2014a)
Yt+1 = Yt + µa2
(a1 + a2
a1e−(A−Yt (1−c)) + a2− 1).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 131 / 139
![Page 393: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/393.jpg)
First applications: Heterogeneous Agents Models
We then find the integrated equation
Yt+1 = Yt +µa2
(a1 + a2
a1e−(A+cYt+α((1−ω)P+ω(d [ωYt+(1−ω)Y ]))−Yt ) + a2− 1).
We stress that for ω = 0 we obtain
Yt+1 = Yt + µa2
(a1 + a2
a1e−(A−Yt (1−c)+αP) + a2− 1),
very similar to the model studied in Naimada and Pireddu (2014a)
Yt+1 = Yt + µa2
(a1 + a2
a1e−(A−Yt (1−c)) + a2− 1).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 131 / 139
![Page 394: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/394.jpg)
First applications: Heterogeneous Agents Models
We then find the integrated equation
Yt+1 = Yt +µa2
(a1 + a2
a1e−(A+cYt+α((1−ω)P+ω(d [ωYt+(1−ω)Y ]))−Yt ) + a2− 1).
We stress that for ω = 0 we obtain
Yt+1 = Yt + µa2
(a1 + a2
a1e−(A−Yt (1−c)+αP) + a2− 1),
very similar to the model studied in Naimada and Pireddu (2014a)
Yt+1 = Yt + µa2
(a1 + a2
a1e−(A−Yt (1−c)) + a2− 1).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 131 / 139
![Page 395: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/395.jpg)
First applications: Heterogeneous Agents Models
The system
Yt+1 = Yt + µa2
(a1 + a2
a1e−(A+cYt+α((1−ω)P+ω(d [ωYt+(1−ω)Y ]))−Yt ) + a2− 1)
has as unique steady state
Y ∗(ω) =A + α(1− ω)[P + dωY ]
1− c − αdω2 .
In particular Y ∗(0) = Y ∗ = A+αP1−c and Y ∗(1) = Y1 = A
1−c−dα , with Y ∗
and Y1 found in Westerhoff (2012).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 132 / 139
![Page 396: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/396.jpg)
First applications: Heterogeneous Agents Models
The system
Yt+1 = Yt + µa2
(a1 + a2
a1e−(A+cYt+α((1−ω)P+ω(d [ωYt+(1−ω)Y ]))−Yt ) + a2− 1)
has as unique steady state
Y ∗(ω) =A + α(1− ω)[P + dωY ]
1− c − αdω2 .
In particular Y ∗(0) = Y ∗ = A+αP1−c and Y ∗(1) = Y1 = A
1−c−dα , with Y ∗
and Y1 found in Westerhoff (2012).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 132 / 139
![Page 397: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/397.jpg)
First applications: Heterogeneous Agents Models
Proposition
Setting µ = 2(a1+a2)(1−c)a1a2
and µ = 2(a1+a2)(1−c−dα)a1a2
, the steady state Y ∗(ω) isstable in the following cases:
for every ω ∈ [0,1], if µ < µ ;
for ω ∈ [R,1], where R =
√1
dα
(1− c − 2(a1+a2)
µa1a2
), if µ < µ < µ .
Indeed, for
ξ(Y ) = Y + µa2
(a1 + a2
a1e−(A+cY+α((1−ω)P+ω(d [ωY+(1−ω)Y ]))−Y ) + a2− 1)
it holds thatξ′(Y ∗) = 1− µa1a2(1− c − αdω2)
a1 + a2∈ (−1,1)
for the above values of µ, recalling that ω ∈ [0,1].
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 133 / 139
![Page 398: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/398.jpg)
First applications: Heterogeneous Agents Models
Proposition
Setting µ = 2(a1+a2)(1−c)a1a2
and µ = 2(a1+a2)(1−c−dα)a1a2
, the steady state Y ∗(ω) isstable in the following cases:
for every ω ∈ [0,1], if µ < µ ;
for ω ∈ [R,1], where R =
√1
dα
(1− c − 2(a1+a2)
µa1a2
), if µ < µ < µ .
Indeed, for
ξ(Y ) = Y + µa2
(a1 + a2
a1e−(A+cY+α((1−ω)P+ω(d [ωY+(1−ω)Y ]))−Y ) + a2− 1)
it holds thatξ′(Y ∗) = 1− µa1a2(1− c − αdω2)
a1 + a2∈ (−1,1)
for the above values of µ, recalling that ω ∈ [0,1].
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 133 / 139
![Page 399: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/399.jpg)
First applications: Heterogeneous Agents Models
Proposition
Setting µ = 2(a1+a2)(1−c)a1a2
and µ = 2(a1+a2)(1−c−dα)a1a2
, the steady state Y ∗(ω) isstable in the following cases:
for every ω ∈ [0,1], if µ < µ ;
for ω ∈ [R,1], where R =
√1
dα
(1− c − 2(a1+a2)
µa1a2
), if µ < µ < µ .
Indeed, for
ξ(Y ) = Y + µa2
(a1 + a2
a1e−(A+cY+α((1−ω)P+ω(d [ωY+(1−ω)Y ]))−Y ) + a2− 1)
it holds thatξ′(Y ∗) = 1− µa1a2(1− c − αdω2)
a1 + a2∈ (−1,1)
for the above values of µ, recalling that ω ∈ [0,1].
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 133 / 139
![Page 400: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/400.jpg)
First applications: Heterogeneous Agents Models
In orange the stability region of Y ∗(ω) in the (µ, ω)-plane
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 134 / 139
![Page 401: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/401.jpg)
First applications: Heterogeneous Agents Models
Hence, for intermediate values of µ, an increasing degree of interactionbetween the real and financial sectors has a stabilizing effect.
This is probably due to the fact that, in our formalization, we assumethat the stock market is an equilibrium market.
Indeed, in Naimzada and Pireddu (2015b), where both the real and thefinancial markets are not always in equilibrium, different scenarios mayoccur.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 135 / 139
![Page 402: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/402.jpg)
First applications: Heterogeneous Agents Models
Hence, for intermediate values of µ, an increasing degree of interactionbetween the real and financial sectors has a stabilizing effect.
This is probably due to the fact that, in our formalization, we assumethat the stock market is an equilibrium market.
Indeed, in Naimzada and Pireddu (2015b), where both the real and thefinancial markets are not always in equilibrium, different scenarios mayoccur.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 135 / 139
![Page 403: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/403.jpg)
First applications: Heterogeneous Agents Models
Hence, for intermediate values of µ, an increasing degree of interactionbetween the real and financial sectors has a stabilizing effect.
This is probably due to the fact that, in our formalization, we assumethat the stock market is an equilibrium market.
Indeed, in Naimzada and Pireddu (2015b), where both the real and thefinancial markets are not always in equilibrium, different scenarios mayoccur.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 135 / 139
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First applications: Heterogeneous Agents Models
The bifurcation diagram w.r.t. ω for the map ξ with A = 5, c = 0.2,α = 1, d = 0.6, a1 = 3, a2 = 2, µ = 6, Y = P = 1
The stabilization occurs via a sequence of period-halving bifurcations.
In particular, for ω = R =
√1
dα
(1− c − 2(a1+a2)
µa1a2
), a flip bifurcation
occurs.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 136 / 139
![Page 405: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/405.jpg)
First applications: Heterogeneous Agents Models
The bifurcation diagram w.r.t. ω for the map ξ with A = 5, c = 0.2,α = 1, d = 0.6, a1 = 3, a2 = 2, µ = 6, Y = P = 1
The stabilization occurs via a sequence of period-halving bifurcations.
In particular, for ω = R =
√1
dα
(1− c − 2(a1+a2)
µa1a2
), a flip bifurcation
occurs.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 136 / 139
![Page 406: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/406.jpg)
First applications: Heterogeneous Agents Models
The bifurcation diagram w.r.t. ω for the map ξ with A = 5, c = 0.2,α = 1, d = 0.6, a1 = 3, a2 = 2, µ = 6, Y = P = 1
The stabilization occurs via a sequence of period-halving bifurcations.
In particular, for ω = R =
√1
dα
(1− c − 2(a1+a2)
µa1a2
), a flip bifurcation
occurs.
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 136 / 139
![Page 407: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/407.jpg)
First applications: Heterogeneous Agents Models
The bifurcation diagram w.r.t. ω for the map ξ with A = 5, c = 0.2,α = 1, d = 0.55, a1 = 3, a2 = 2, µ = 6, Y = P = 1
We highlight a multistability phenomenon characterized by thecoexistence of chaotic and periodic attractors (in red) with aperiod-eight orbit (in blue).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 137 / 139
![Page 408: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/408.jpg)
First applications: Heterogeneous Agents Models
The bifurcation diagram w.r.t. ω for the map ξ with A = 5, c = 0.2,α = 1, d = 0.55, a1 = 3, a2 = 2, µ = 6, Y = P = 1
We highlight a multistability phenomenon characterized by thecoexistence of chaotic and periodic attractors (in red) with aperiod-eight orbit (in blue).
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 137 / 139
![Page 409: Financial models with interacting heterogeneous agents ...staff.matapp.unimib.it/~pireddu/Beamer-Insubria-1D.pdf · We will then introduce some basic mathematical tools from discrete](https://reader034.fdocuments.in/reader034/viewer/2022050219/5f64836f5d6b994f9f267ce0/html5/thumbnails/409.jpg)
First applications: Heterogeneous Agents Models
References on the first applications of HAMs:
– Day RH, Huang W (1990) Bulls, bears and market sheep. Journal ofEconomic Behavior and Organization 14, 299–329– Naimzada A, Pireddu M (2014a) Dynamics in a nonlinear Keynesiangood market model. Chaos 24, 013142. DOI: 10.1063/1.4870015– Naimzada A, Pireddu M (2014b) Dynamic behavior of product andstock markets with a varying degree of interaction. EconomicModelling 41, 191–197– Naimzada A, Pireddu M (2015a) Introducing a price variation limitermechanism into a behavioral financial market model. Chaos 25,083112. DOI: 10.1063/1.4927831– Naimzada A, Pireddu M (2015b) Real and financial interactingmarkets: A behavioral macro-model. Chaos Solitons Fractals 77,111–131
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 138 / 139
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First applications: Heterogeneous Agents Models
– Tramontana F, Gardini L, Dieci R, Westerhoff F (2009) Theemergence of bull and bear dynamics in a nonlinear model ofinteracting markets. Discrete Dynamics in Nature and Society 2009,310471– Westerhoff F (2012) Interactions between the real economy and thestock market: A simple agent-based approach. Discrete Dynamics inNature and Society 2012, Article ID 504840
Marina Pireddu (Univ. of Milano-Bicocca) Discrete-time heterogeneous agent models Insubria Univ., 20/03/2018 139 / 139