The catastrophe theory, also known as the morphogenesis theory, was first introduced in 1971 by the French mathematician Rene Thom. The theory considers dynamical systems described by n-dimensional state variable and k-dimensional control parameter exhibiting the so-called discontinuous transitions during their evolution.
Example of application in attachment
I don't know anything about catastrophe theory but your article is very good and you make a convincing arguement for the use of this approach to analyse changes in the property market.
Dear Miroslav, I wrote paper on catastrophe theory and financial markets some years ago. However, it is in Spanish. In my personal page here on RG it is uploaded.
Any way, there is a wonderful relationship here, indeed. As you know, catastrophe theory is, according to Thom, a language aimed at describing and studying sudden, unpredictable and irreversible changes. Well, that is indeed the case with the financial markets currently, as it happens. I shall read right now your paper.
Indeed catastrophic or chaos theory describe the dynamics that takes place in financial markets including real estate, not only that the spaces they can be described is infinite dimensional. These sharp and abrupt changes in values and prices or simply erratic market behaviors are reasons to the difficulty of predicting them. Perhaps their erratic behaviors is more pronounced by greed and uncontrollable appetite to deceive and get more profit.
Dear Carlos
Thank you for your response. I hope you will find it interesting.
I have found your paper about the catastrophe theory. Of course I did not understand much (Spanish language), but I will add it to my articel base.
In my other articles, together with co-author, we used the methods e.g. from physical sciences, eg. the harmonic oscillator model.
Dear Dejenie
Thank you for your answer. I hope that using a catastrophe theory sheds a new light on the dynamics of changes in property prices not only in a quantitative approach, but above all, from a qualitative perspective. The real estate market was analyzed as a dynamic system which always evolves towards a minimum potential function whose arguments are selected control variables. Catastrophe theory was applied to describe discontinuities in the process of system development. From an intuitive point of view, the system's global evolution is manifested by sequences of continuous changes which are interrupted by sudden changes of varied qualitative character. The results of the study validate the theory that sudden changes in property prices significantly affect the structure of the entire real estate market, and that quasi-discrete changes should be regarded as critical points in the process of market evolution.
Dear Miroslav, I agree with the opinion Dejenie. The dynamics of price changes nieruchomści can not be considered without changes in other markets. The sharp and sudden changes in values and property prices are not the direct result of previous changes in real estate prices. I think that the study / analyze changes on the real estate market is incorrect.
In response, you wrote:
"The results of the study validate the theory That sudden changes in property prices significantly Affect the structure of the entire real estate market, and That quasi-discrete changes should be regarded as critical points in the process of market evolution."
Note that the sudden change in prices may be due to:
- Changes in financing conditions,
- Changes in legal,
- Changes in supply,
- Changing conditions in the market for example. Liquidation of a large company
- Wysąpienie natural disasters eg. Flood.
These actions will lead to a sudden change in real estate prices and, consequently, changing the structure of the market.
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