From Fluid Dynamics to Human Psychology.What Drives Financial Markets Towards Extreme Events

For decades researchers have been trying to build models that would help understand price performance in financial markets and, therefore, to be able to forecast future prices. However, any econometric approaches have notoriously failed in predicting extreme events in markets. At the end of 20th century, market specialists started to admit that the reasons for economy meltdowns may originate as much in rational actions of traders as in human psychology. The latter forces have been described as trading biases, also known as animal spirits. This study aims at expressing in mathematical form some of the basic trading biases as well as the idea of market momentum and, therefore, reconstructing the dynamics of prices in financial markets. It is proposed through a novel family of models originating in population and fluid dynamics, applied to an electricity spot price time series. The main goal of this work is to investigate via numerical solutions how well theequations succeed in reproducing the real market time series properties, especially those that seemingly contradict standard assumptions of neoclassical economic theory, in particular the Efficient Market Hypothesis. The results show that the proposed model is able to generate price realizations that closely reproduce the behaviour and statistics of the original electricity spot price. That is achieved in all price levels, from small and medium-range variations to price spikes. The latter were generated from price dynamics and market momentum, without superimposing jump processes in the model. In the light of the presented results, it seems that the latest assumptions about human psychology and market momentum ruling market dynamics may be true. Therefore, other commodity markets should be analyzed with this model as well.

Cognitive Auditory Evoked Potentials in Investigation of Hearing Discrimination

Preattentive perception of occasional deviating stimuli in the stream of standard stimuli can be recorded with cognitive event-related potential (ERP) mismatch negativity (MMN). The earlier detection of stimuli at the auditory cortex can be examined with N1 and P2 ERPs. The MMN recording does not require co-operation, it correlates with perceptual threshold, and even complex sounds can be used as stimuli. The aim of this study was to examine different aspects that should be considered when measuring discrimination of hearing with ERPs. The MMN was found to be stimulusintensity- dependent. As the intensity of sine wave stimuli was increased from 40 to 80 dB HL, MMN mean amplitudes increased. The effect of stimulus frequency on the MMN was studied so that the pitch difference would be equal in each stimulus block according to the psychophysiological mel scale or the difference limen of frequency (DLF). However, the blocks differed from each other. The contralateral white noise masking (50 dB EML) was found to attenuate the MMN amplitude when the right ear was stimulated. The N1 amplitude was attenuated and, in contrast, P2 amplitude was not affected by contralateral white noise masking. The perception and production of vowels by four postlingually deafened patients with a cochlear implant were studied. The MMN response could be elicited in the patient with the best vowel perception abilities. The results of the studies show that concerning the MMN recordings, the stimulus parameters and recording procedure design have a great influence on the results.