A model for the dynamic behavior of financial assets affected by news: The case of Tohoku–Kanto earthquake

The prices of financial products in markets are determined by the behavior of investors, who are influenced by positive and negative news. Here, we present a mathematical model to reproduce the price movements in real financial markets affected by news. The model has both positive and negative feed-back mechanisms. Furthermore, the behavior of the model is examined by considering two types of noise. Our results show that the dynamic balance of positive and negative feed-back mechanisms with the noise effect determines the asset price movement.

► We present a model for the dynamic behavior of the price affected by news.
► Both positive and negative feed-back mechanisms determine the price movement.
► We use forex historical data when Tohoku–Kanto earthquake occurred.
► Adding noise to the model, the distribution of price agrees with that of real data.
► The sample path in the simulation reproduces well the real market motion.