Study of Financial Stability Based on Nonlinear Dynamic Theory

Abstract

With the outbreak of global financial crisis, the stability of financial system has become a hot topic. Assuming financial system compositing of financial innovation and financial supervision, making use of nonlinear dynamic theory and Bertrand duopoly, we have deduced a nonlinear dynamic model of financial system and studied the stability of this system through model analysis and numerical simulation. We find that the stability of financial system is up to parameters in the system, when the parameters affecting stability of financial system are beyond its stable reach, the financial system will pass through double periodicity to financial chaos. Which has negative effects on the stability of financial system, if serious, may lead to bankrupt and financial crisis. At last, we successfully control financial chaos by the straight line stabilization method, and maintain the stability of financial system.