Bodo Herzog

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Department of Economics, ESB Business School, Reutlingen, Germany.
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Abstract: Usually financial crises go along with bubbles in asset prices, such as the housing bubble in the US in 2007. This paper attempts to build a mathematical model of financial bubbles from an econophysics, and thus a new perspective. I find that agents identify bubbles only with a time delay. Furthermore, I demonstrate that the detection of bubbles is different on either the individual or collective point of view. Second, I utilize the findings for a new definition of asset bubbles in finance. Finally, I extend the model to the study of asset price dynamics with news. In conclusion, the model provides unique insights into the properties and developments of financial bubbles.

Keywords: Financial Bubbles, Econophysics, Wave Equation, Financial Crises

Cite this paper: Herzog, B. (2015) An Econophysics Model of Financial Bubbles. Natural Science, 7, 55-63. doi: 10.4236/ns.2015.71006.

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