text:
# 1 Introduction

## 1 Introduction

The reader who is familiar with the economically background of foreign exchange markets may skip this section.

### 1.1 Financial markets in particular the foreign exchange markets

The financial markets are composed of credit markets, security markets and foreign exchange markets. These three markets interact. In this article we refer to foreign exchange markets. On foreign exchange markets currencies are traded. Exchange rate changes are a measure for the economical efficiency of national economics. The rate of exchange is the price for a foreign currency. Increasing or decreasing prices of the currencies affect the development of the particular national economy. So a devaluation causes expensive imports and low priced exports.

### 1.2 The system of Bretton Woods

The foreign exchange market we know today existed not before the seventies in this way. Fourty years ago, the system of Bretton Woods reigned over the international financial world. In 1944 agents of 44 nations met in Bretton Woods in the US-state New Hampshire under leadership of the victor nations to decide about the economic future after the World War II. The members of the conference brought about the World Bank and the International Monetary Fund. The arrangement of Bretton Woods was enacted in December 1945. The purpose of this meeting was to reorganize and to stabilize world commerce and international trade after the Second World War. The new world currency system is based on the warranty of best possible free convertibility of the currencies with fixed foreign exchange rates. The member states had to trade their currencies either for parities in gold or parities to the US Dollar, which showed a gold parity itself. So the US Dollar became the new world’s leading currency .

### 1.3 Foreign exchange markets after Bretton Woods

The system of Bretton Woods was exempted at first from international financial crises. In Germany we know the time of economic growth as “economic miracle”. The arrangement of Bretton Woods was only profitable for industrial nations. For developing countries the promised wealth was never reached. Later, the weakening strength of the US Dollar compared to European currencies lead to speculative crises.

Thus since 1971 the arrangement was abolished step by step. For reduction of the great nonequilibrium in the balances of payments between the EG currencies and the US currency, free rates of exchange were introduced in 1973. The fixed foreign exchange rates were replaced by free fluctuating foreign exchange rates between the leading currencies which are today US Dollar, Euro and Yen. The rate of exchange system was regulated by the free game of the market forces, e.g.the private finance companies. The government did not interfere in foreign exchange market regularly. The prices for different currencies result from the difference between demand and supply. Important for the rate of exchange is the faith of the investor in the currency. Since controls for the turnover of capitals no longer exist and computers render it possible to do transactions very quickly, rates of exchanges are determined by short-term financing. Consequently, the foreign exchange markets are not a true measure for the economical efficiency of the nations .

### 1.4 Where does the trade with foreign exchanges take place ?

62% of the world wide trading volume with foreign exchange in 1995 was realized from only a few finance companies in the top five markets : United Kingdom, United States, Japan, Singapore and Hong Kong. 85% of this trade takes place in the top nine (top five plus Switzerland, Germany, France and Australia) alone .

### 1.5 Crises

Unfortunately the less established financial markets today are determined by proneness to crises (financial crises in the nineties and later: 1994 Mexico, 1997 East Asia, 1998 Russia, 1999 Brazil  and 2001/2002 Argentina.). Short-term transactions are in a high measure responsible for the fluctuations of the rates of exchanges. Volatility favours the development of speculative bubbles and in this way it could give rise to crises. This is especially difficult for developing countries because they react very sensitively on external crises.
A model of financial crises is a four step one by Kindleberger:

First stage:
An external occurence promises opportunities for making profit. The price for the hopefully profitable thing increases.

Second stage:
This attracts other investors, who want to profit from the increasing prices. The increasing demand causes an increase of the price. The higher the expectation of profit the more money will be invested. If the investors believe in very high profit they raise a loan to invest more in the speculative operation.

Third stage:
The investors come to know that the profit expectation can not be fulfilled. So the profit expectations turn back. The prices increase only slowly or they remain stable.

Last stage:
The prices stagnate and the investors who financed the speculative operation by credits can’t pay back the credits. They have to give up all or parts of the securities. The prices of the speculative object decrease. The decreasing prices cause investors to sell their papers panickingly. The worth of the speculative object goes down. So profit expectation turns into losing business and credits can’t be payed back. Papers which are used as securities for further credits lose on worth and the banking establishment calls for further securities, repay or they call in the credits. A bank crisis is possible. The credit crisis turns to an insolvency of the inland economy. So the firms are no longer solvent. The financial crisis is now in production sector, and this causes unemployment with its consequences.
World wide, the ILO, in its 1998 World Employment Report, estimated that unemployment increased by 10 million people solely due to the Asian financial crises . Often such crises spread out internationally. Above all short-term capital played an important role in the finance crises of the nineties. Their part on all trades increased about by 300 percent between 1990 and 1995. An important reason for this growth is the removal of controls over turnover of capitals. By means of such controls long-term credits or capital investments could be preferred over short-term investions. Additionally, interests for short-term credits are more favourable than those for long-term credits, because the risk for creditors is greater with long-term credits for developing countries.

### 1.6 How does currency speculation work ?

If an investor expects the devaluation of a currency A, he will raise a credit in this currency A. The money he gets in this way will be invested in a currency B. When the devaluation of currency A occurs, the investor only has to take a smaller part of his money in currency B to pay back the credit in currency A. The rest of the money in currency B is his profit.

### 1.7 Herd behaviour

Through hedge funds and other financial organisations which operate internationally the speculation on currencies gets more weight. When a big financial organisation invests a lot of money or calls a lot of money back from a certain transaction, profit or loss expectation from other investors rises. Thus a herd behaviour springs up. A lot of investors will try to get a part of the quickly earned money. Much money will be invested in speculative operations. Sometimes the foreign exchange reserve of the central bank will be spent, if the central bank tries to stabilize the own currency by means of buying. If this method fails, the currency speculation is followed by a devaluation of the currency.

### 1.8 Trading volume on foreign exchange markets

When in 1971 the USA abandoned the Bretton Woods system of fixed foreign exchange rates and the first transactions with computers came into being, the turnover on the financial markets grew in an abnormal way. From 1970 to 2000 the turnover of the trade with currencies increased from 70 billion to 1.5 trillion US Dollars each trading day. Especially 80% of the 1.5 trillion Dollars are short-term transactions with terms less than seven days, and more than 40% involve round-trips (a purchase operation followed by a resale operation) within two days or less . To estimate the dimensions of speculation we have to take into consideration that annual turnover by 200 trading days in a year reaches 300 trillion US Dollar and this is 40 times the international product and service trade. And 90% of the turnover are speculative short-term transactions and only 10% goes into the production sector .

### 1.9 The Tobin tax

To slow down this process in order that less operations will be speculative and the rates of exchange less fluctuating, James Tobin222James Tobin was an American economist. Since 1955 he taught at Yale University. In 1981 Tobin became the Nobel Laureate for his papers about monetary theory for governmental financial management . already suggested in 1972 to impose a tax with a tax rate of 1% affecting all buying and selling currency transactions333Tobin’s proposed tax on international currency transactions, intended to curb speculation, is an extension to foreign exchange markets of Keynes’s proposed tax on stock market transactions. Keynes advocated a tax to curb speculation in stock markets. He advocated stronger measures for foreign exchange markets, such as capital controls to defend the autonomy of national stabilization policies. These capital controls were an essential factor to Keynes’s wartime proposal for an International Clearing Union .. Today a tax rate between 0.05% and 0.5% is discussed. The tax Tobin recommended should affect the speculators. The investors try to use smallest price differences even below the $`10^3`$ border by foreign rates of exchange. This transactions don’t have a real economic meaning. The development of the exchange rates reflect only the hopes of the investors. Supporters of the tax believe that a small tax will make such transactions unprofitable. The rate and the number of such short-term transactions slow down without affecting long-term credits and long-term capital investment. More precisely, they talk about a filter function of the Tobin tax: The tax renders all currency transactions ( no matter whether short-term or long-term) more expensive. But because of the different terms the consequences for the different dealing are very different. Short-term transactions are only lucrative when the expectation of the profit is higher than Tobin tax. For example: if Tobin tax rate is 0.5% and one wants to do a transaction for only one week: in this case an annual interest of 52% is necessary to make the transaction profitable. The reduction of short-term transactions will favour long-term transactions. Speculation is reduced and this is hoped to be a prevention for crises. But there is still a fact where Tobin tax is not a method to control. Even the supporters of Tobin tax says that this kind of tax can’t minimize speculation operations where 10% to 50% profit is promised. Therefore other controls about turnover of capital should be used. Supporters of the tax named two reasons for introducing Tobin tax: on the one hand the tax would regulate the speculative operations, on the other hand there will be a source of income which is estimated in a two figure billion US Dollars range. Estimates from Felix and Sau in 1996 tell that a tax rate of 0.25% will reduce the transaction volume less than 33% . With these reasons for Tobin Tax in mind, many people in government or from other organisations like WEED or ATTAC444On initiative of the french monthly “ Le Monde diplomatiqué” come out in june 1998 ATTAC “Association pour une taxation financieres pour l’aide aux citoyens”. ATTAC is now represented in 30 countries. A purpose from ATTAC is that policy regulates financial markets and not reverse. agree to the tax.

## 2 The model of Cont and Bouchaud

We get our results due to combining Tobin tax in two different ways with the microscopic model of Cont and Bouchaud based on percolation theory.
In percolation theory we start to fill the lattice in the way that each site is randomly occupied with probability $`p`$ and empty with probability $`(1p)`$. Neighboring occupied sites form clusters. If a contiguous path of occupied sites connects upper and bottom of the lattice for the first time, the threshold value $`p=p_c`$ is reached.
In the model presented, the randomly formed clusters are agents who act together, to describe herding behaviour in financial markets. Different clusters reach their decision about buying or selling absolutely randomly and indepently from the other clusters. If there is more supply than demand, the price change decreases proportionally to the difference - otherwise the price change increases. In every iteration, each cluster makes a decision to buy or to sell, each with probability $`a`$ (which is called the activity). The cluster is inactive in the iteration with probability $`(12a)`$. The maximum value of the activity is 0.5 . We can interpret the activity as a measure for length of the time which we handle in one iteration. If we take the value $`a`$ close to 0.5, we handle big time steps where nearly all clusters have already made a decision to buy or to sell. Otherwise a small $`a`$ means that one iteration represents not enough time so that there are only a few clusters who make in this iteration a decision to buy or to sell.
The probability distribution of the price fluctuations shows many smaller and less big fluctuations and the graph is essentially symmetrical. For an activity $`a`$ close to 0.5 the results at the critical point $`p_c`$ are similar to a Gaussian curve. For a smaller activity (in particular if we take an $`a`$ corresponding to intra day time scales) we get heavy tails in the distribution of stock price variations in the form of a power law truncated by size effects. Such a behaviour was observed in empirical studies of high frequency market data. Furthermore there exists weak correlations between successive price changes, and strong correlations (“volatility clustering”) between successive absolute values of price changes.

The framework of the simulation

* We determine with the complicated algorithm of Hoshen and Kopelman the number $`n_s`$ of clusters with $`s`$ agents. Note that if one works with $`p`$ greater than $`p_c`$, one has to ignore the one infinite cluster. This infinite cluster causes only crashes and bubbles.
* We decide randomly if the cluster is active in this iteration.

+ If the cluster is active, we decide by another random number if the cluster would like to buy or to sell an amount which corresponds to the size of the cluster. The return, the difference $`_s(n_s^+sn_s^{}s)`$ which means especially the difference between demand and supply, is proportional to price change in this time step.
    + If the cluster is not active, it contributes nothing to the return.
* If we have all clusters processed in this way, one iteration is finished and we start again from beginning.

The best agreement with real price fluctuations is found when the concentration is slightly above $`p_c`$. One gets the biggest fluctuations when $`p`$ is equal to $`p_c`$. Cont and Bouchaud identified $`p=p_c`$ therefore with market crashes.
There are already different modifications of this model in existence .

## 3 Modifications of the model of Cont and Bouchaud by introducing Tobin tax

In the original Cont-Bouchaud model we have only two parameters: the activity $`a`$ and the concentration $`p`$ (the probability to find an occupied site in the lattice. In our simulations we work always at the critical point $`p_c`$). The modified versions of the model used here, has three additional parameters: Tobin tax, Producers and maxwin.
Producers are people who act, even when they not expect to make profit, e.g. to pay a bill.
Because the returns of the Cont-Bouchaud model are often large integers and the Tobin tax is a very small number (less than 1%), we have to normalize the returns. We take two values for maxwin here: 50% and 5%. In the first case, this means that if all clusters in an iteration are active and buying, the return is +50%. Otherwise, if all clusters are active and selling only, the return is -50%. Certainly, not all clusters will buy in the same iteration and not all clusters will sell in the same iteration. We actually get returns between -8% and +8% with the original Cont-Bouchaud model in the case of maxwin= 50%. For the case of maxwin= 5% we get actual returns between -0.8% and +0.8% (see figures 8a, 8b and 9). Note that 80% of the daily speculation trade has taken place because the traders would like to take advantage of profits below the $`10^3`$ border. Thus the value maxwin= 5% is rational.

### 3.1 First modification of the Cont-Bouchaud model

The framework of the simulation

* Because our agents believe that the return of the time step before, which we call $`r_{}`$, is authoritative for the following return development, we need $`r_{}`$ in this model. In the first time step we took $`r_{}`$= 1%.
* We determine the number $`n_s`$ of clusters with $`s`$ agents with the algorithm of Hoshen and Kopelman.
* We decide randomly if the cluster is active in this iteration.

+ If the cluster is active we have to test, whether the condition ($`r_{}`$ greater than Tobin tax) has been fulfilled or not.

    - If this is the case we decide by another random number, if the cluster would like to buy or to sell an amount which corresponds to the size of the cluster.
        Notice: Both, for buying and selling, we take the condition $`r_{}`$ greater than Tobin tax. In the first case we simulate optimists (these are people who buy because $`r_{}`$ is greater than Tobin tax and they believe that $`r_{}`$ of next time step will exceed current one) and in the second pessimists (these people sell because $`r_{}`$ is greater than Tobin tax and they believe that $`r_{}`$ in the next time step will be in the same order of magnitude as in the current time step but it will change the sign).
        The return, the difference $`_s(n_s^+sn_s^{}s)`$ which means the difference between demand and supply, is proportional to the price change in this time step.
        - If the condition is not true we decide through another random number if the cluster is forced to trade because it belongs to the Producers.

        * If the cluster is a Producer we decide randomly if the cluster buys or sells and take it into account for the calculation of the return.
            * If the cluster does not trade it contributes nothing to return or turnover.
    + If the cluster is not active it contributes nothing to return or turnover.
* At the end of the iteration we save the return to use it in the next iteration as new $`r_{}`$. We normalize the returns as described above.
* If we have handled all the clusters in this way, we have finished one time step and we begin the next by redistributing anew the occupied sites.

Note that when there are no Producers and the condition is never fulfilled the return is always zero.

### 3.2 Second modification of the Cont-Bouchaud model

The framework of the simulation

* We took again $`r_{}`$= 1% initially.
* We determine the number $`n_s`$ of clusters with $`s`$ agents.
* We decide randomly if the cluster is active in this iteration.

+ If the cluster is active we have to test, whether one of the conditions ($`r_{}`$ greater equal than Tobin tax or $`r_{}`$ less than ($``$ Tobin tax)) has been fulfilled or not.

    - If this is the case we decide by another random number, if the cluster would like to buy or to sell an amount which corresponds to the size of the cluster. The cluster trades in the following two cases: 1. $`r_{}`$ greater than Tobin tax and the cluster will buy (this simulates the behaviour of optimists because they believe that the return will further increase). 2. $`r_{}`$ less than ($``$ Tobin tax) and the cluster will sell (this simulates the behaviour of pessimists because they believe that the return will further decrease). As above, we determine the return by the difference between demand and supply.
* Now for Producers etc. we procede as in the first modification.

We examine the second modification only for RM.

## 4 Results

To get figures 1-6,11-13 and 16, we took for our calculations an average over about 10000 cluster configurations and a square lattice of length 31. The activity was a=0.4999.
For many of our results we calculate the turnover and sum it up over 500 time steps. With this turnover we determine the profit for government as a function of Tobin tax by multiplication of the turnover with the Tobin tax rate. To get better results we multiply profit for government by $`10^8`$, which corresponds to a summation of turnover about more iterations. The model without Tobin tax can be related to Tobin tax equal zero (which we call “rational model” (RM)) or alternatively to the original Cont-Bouchaud model, where all investors trade even for negative $`r_{}`$ (which we call “similar Cont-Bouchaud model (SCBM)). When we examine y as a function of Tobin tax, the differentiation between these two models leads to an other scale of the y axis. To see this, we show the comparison between these two models in figures 3 - 6 for the first modification of the Cont-Bouchaud model. We examine the second modification only for RM.

To get the turnover as a function of Tobin tax, we set the turnover we get the way described above for zero Tobin tax to 100%. Then we relate the turnover we get for a positive Tobin tax to the one when we set the Tobin tax to zero.
(Alternatively, we could normalize here again the turnover to that of the original Cont-Bouchaud model.)

### 4.1 Results of the first modification of the Cont-Bouchaud model

* Turnover as a function of time
In fig.1a we see that trade will go to zero when there are no Producers. We also see the way the trade volume will decrease with increasing Tobin tax when there are 0.5% Producers. We took maxwin= 5%
The graph shows from top to bottom:
The first line shows the turnover we get with the original Cont-Bouchaud model. The next line is a turnover when people only trade, if $`r_{}`$ is greater or equal zero.
We get the following three by introducing 0.5% Producers with a Tobin tax of zero (empty circles), 0.16% (full circles) and 0.5% (triangles). The next three lines show the development of turnover when nobody has to act, i.e. when there are no Producers, for the same three tax levels.
What we see if there are no Producers, the turnover approaches zero the faster, the higher Tobin tax is.
* Profit for government

Fig.1b shows the government profit as a function of the Tobin tax for the RM. We took again maxwin= 5%.
From top to bottom the graph shows the behaviour when we take the following values for the Producers: 0.5 % , 0.4 % , 0.3 % , 0.2 % and finally 0.1 %.

In fig.2a we take 1% Producers and fit the first part by the straight line
$`y=(3983\pm 630)+(126550\pm 14585)x`$ (where $`x`$ represents the Tobin tax rate and $`y`$ the profit for government)
and the last part by the straight line
$`y=(17762\pm 163)+(10622\pm 356)x.`$
Both straight lines intersect at $`(0.120\%\pm 0.009\%)`$ Tobin tax.

Thus if a Tobin tax should be introduced by government, we suggest a value of $`0.12\%`$. This is the case where government makes the highest profit from speculators, on condition of returns between $`0.8\%`$ and $`+0.8\%`$ (fig.8b). These returns are reasonable because we have seen above, speculators try to take advantage of profits below the $`10^3`$ border. If we take one time step as a week, the extreme return of 0.8% corresponds to an interest calculation of 83.2% per annum. Furthermore we found in our calculations that the value of $`0.12\%`$ Tobin tax is independent of the number of Producers as long as there are not more than 5% Producers. Notice that in reality there are far less Producers than 5%, so we can propose a tax of $`0.12\%`$.
The straight line with which we fitted the first part of the graph corresponds to ignoring the Tobin tax, in the way that is not dependent on the Producers. The second straight line fitted the part where only the Producers trade.
* Turnover as a function of Tobin tax
In fig.2b we take 1% Producers and maxwin= 5%. We show the way the turnover will decrease if we introduce a Tobin tax. If we take the proposed value of 0.12%, the turnover decreases by about 87%.
* Profit for government as a function of Tobin tax.
We will compare RM and SCBM.

+ At first we take maxwin= 5%
    From top to bottom fig.3a (RM) and fig.3b (SCBM) show the curves for 0.005%, 0.004%, 0.0035% and finally 0.003% Producers.

    The fig.4a (RM) and fig.4b (SCBM) show that there won’t be a difference between the values one should propose for Tobin tax, when we compare both models. We take 0.005% Producers here.
    The first part of figure 4a is fitted by
    $`y=(28\pm 1)+(425\pm 17)x`$
    The second straight line which is used to fit the second part is:
    $`y=(71\pm 2)+(50\pm 4)`$\*x
    The first part of figure 4b is fitted by
    $`y=(19\pm 1)+(281\pm 11)x`$
    The second straight line which is used to fit the second part is:
    $`y=(46\pm 1)+(35\pm 3)x`$

    Again we can state that the convenient Tobin tax is $`(0.113\%\pm 0.013\%)`$ (which corresponds to the value we got above within the error margin) when we relate to zero (RM).
    And when we take the model similar to Cont-Bouchaud (SCBM), we get for government a convenient Tobin tax of $`(0.118\%\pm 0.008\%)`$.
    + Now we take maxwin=50%
    The returns one gets now are actually between $`8\%`$ and $`+8\%`$. From top to bottom in fig.5a and fig.5b are curves for 0.005%, 0.004%, 0.0035% and finally 0.003% Producers.

    We see in fig.5a and fig.5b that there is an expected difference for proposing a Tobin tax depending on the value of maxwin.

    The first part of fig.6a is fitted by
    $`y=(0\pm 0)+(2301\pm 0)x`$
    The second straight line which is used to fit the second part is:
    $`y=(303\pm 3)+(385\pm 7)`$\*x
    Both straight lines intersect at $`(0.158\pm 0.002)\%`$ Tobin tax.
    The first part of fig. 6b is fitted by
    $`y=(0.55\pm 0.69)+(1519\pm 10)x`$
    The second straight line which is used to fit the second part is:
    $`y=(204\pm 2)+(253\pm 5)x`$
    Here both straight lines intersect at $`(0.161\pm 0.004)\%`$ Tobin tax.
    Both values we get here for Tobin tax agree within the margin errors.
    Result here: If we take maxwin as 50% we should propose a Tobin tax of 0.16%.
* Profit for government as a function of Tobin tax with increasing Producers.

Here in fig.7 we have from top to bottom 100%, 90%, 80%, 70%, 60%, 50%, 40%, 30%, 20%, 10%, 5% and finally 1%. One can see that we get straight lines as long as there are 50% Producers . These straight lines show that there is an insensitivity against the Tobin tax.
But in real currency markets there are not so many Producers. The number of Producers will converge to a very small number. But it does not converge to zero because there are people who must sell because they need money.
We get the following straight lines from top to bottom:
Straight lines which fit profit as a function of Tobin tax    Producers Straight line  100% $``$ Cont-Bouchaud $`y=0`$  90% $`y=(987570\pm 607)x(1168\pm 212)`$  80% $`y=(971500\pm 1335)x(2615\pm 466)`$  70% $`y=(952320\pm 2297)x(4493\pm 802)`$  60% $`y=(924940\pm 3561)x(6987\pm 1243)`$  50% $`y=(888740\pm 5244)x(10369\pm 1832)`$  70% $`y=(833460\pm 7571)x(15207\pm 2644)`$
* Return as a function of time
In the following Figs.8 and 9 the “+” sign represents the returns in the original Cont-Bouchaud model, the “x” sign represents the returns when $`r_{}`$ should be greater or equal to zero, “ * ” shows the behaviour when a Tobin tax of 0.01% is introduced and the empty squares stand for returns when a tax of 0.16% is introduced.
We took a square lattice of length 31 and an average about 100 cluster configurations.
In fig.8a (maxwin= 50%) and fig.8b (maxwin= 5%) we took 1% Producers. In fig.9 we took only 0.005% Producers (maxwin= 5%).
* The Return Histogram
The deviation of the heavy tails from the Gaussian will be characterized by a significant excess kurtosis which is defined by

$$\kappa =\frac{\mu _4}{\sigma ^4}3,$$
(1)
where $`\mu _4`$ is the fourth central moment and $`\sigma `$ the standard deviation of the returns. $`\kappa `$ should be zero for a normal distribution but it ranges between 2 and 50 for daily returns and is even higher for intra day data. The fat tails correspond to large fluctuations in returns.
For the following calculations we took a square lattice of length 101. We took an average of about 100 cluster configurations and made 100000 iterations.
Here are the prices not normalized and we take 1% Producers.
Figure 17 shows from outside to inside the Gaussian for the original Cont-Bouchaud model for which we get a kurtosis of $`\kappa =0.58`$ here (probably this is due to the small lattice). The next interior curve represents the case when people act when $`r_{}`$ is greater or equal zero ($`\kappa =3.71`$). What follows is the curve where Tobin tax amounts 0.01% ($`\kappa =8.38`$) and for the last one a Tobin tax of 0.16% ($`\kappa =56.76`$) is assumed. In figure 16 we have add the following two cases: The Cont-Bouchaud model with activity a=10% and a=1%. The outer one of the two added curves corresponds to activity a=10% ($`\kappa =4.96`$) and the other one to a=1% ($`\kappa =54.72`$).
From the picture we get the results that the effect of “convergence” to zero is the greater the greater Tobin tax is and the “convergence” to zero is for a $``$ 1% not so drastic as for Tobin tax $``$ 0.16%.
* Number of speculating and trading investors

For Fig.11, we sum up the number of investors who are former speculators (+) or still active speculators (x) over about 500 time steps for different values of Tobin tax rate. We define former speculators in the following way: The former speculators are those people who don’t trade because they do not fulfill the condition $`r_{}`$ greater than Tobin tax. Here is maxwin= 5% and Producers= 1%. Fig.11 shows the result for the RM. We have seen above that a Tobin tax rate of 0.12% is convenient for government. But you can see that we have here 91% former speculators and only 9% still active speculators.
The SCBM gives nearly the same result except the fact that when Tobin tax is equal zero there are no former speculators and all available investors are active speculators.
The sum about number of clusters corresponding to the sum about the number of investors lies between 18265 and 18275.
If we take a look on the number of investors who are former or active speculators as a function of time, we get straight lines.
Straight lines which fit the number of former speculators as a function of time    Condition to trade Straight line  Cont-Bouchaud $`y=0`$  $`r_{}0\%`$ $`y=(83.833\pm 0.002)x(66.062\pm 0.466)`$  $`r_{}0.01\%`$ $`y=(175.362\pm 0.003)x(268.98\pm 0.870)`$  $`r_{}0.16\%`$ $`y=(208.527\pm 0.005)x(379.22\pm 1.587)`$
Straight lines which fit the number of still active speculators as a function of time    Condition to trade Straight line  Cont-Bouchaud $`y=(229.642\pm 0.001)+(3.305\pm 0.429)`$  $`r_{}0\%`$ $`y=(145.774\pm 0.003)x+(68.755\pm 0.764)`$  $`r_{}0.01\%`$ $`y=(54.265\pm 0.003)x+(266.055\pm 0.777)`$  $`r_{}0.16\%`$ $`y=(21.029\pm 0.003)x(359.080\pm 0.926)`$

For every value of Tobin tax we have an average cluster size of $`(6.42\pm 0.02)`$ and the “infinite” cluster we ignored because it causes only crashes and bubbles has an average size of $`(311.38\pm 0.97)`$ .

### 4.2 Results of the second modification of the Cont-Bouchaud model

With this modification we did in generally the same calculations as described above but only for RM.

* Turnover as a function of time
In fig.12a we see that trade will go to zero when there are no Producers. We also see the way the trade volume will decrease with increasing Tobin tax when there are 0.5% Producers. We took maxwin= 5%
The graph shows from top to bottom:

The first line shows the turnover we get with $`0\%`$ Tobin tax and $`0.5\%`$ Producers. The next line is a turnover with $`0\%`$ Tobin tax and $`0\%`$ Producers.
We get the next following two lines which does not present a decrease of turnover after by about 100 time steps with $`0.5\%`$ and $`1\%`$ Tobin tax and in both cases $`0.5\%`$ Producers. The next two lines describe the behaviour for $`0\%`$ Producers for $`0.5\%`$ Tobin tax and $`1\%`$ Tobin tax. What we see if there are no Producers, the turnover approaches zero the faster, the higher Tobin tax is, but the decay is not so drastic as we have seen with the first modification of the Cont-Bouchaud model.
* Profit for government
Fig.12b shows the profit for government as a function of the Tobin tax. From top to bottom the graph shows the behaviour when we take the following values for the Producers: 15%, 11%, 10%, 8%, 7%, 6%, 5%, 4%, 3%, 2%, 1%, 0.1% and finally 0%.
We see here that the maximum goes to higher Tobin tax rates for an increasing number of Producers. We took here maxwin= 5%. When we took maxwin= 50% the maximum of profit for government is above 1.5% Tobin tax.
* Tobin tax to get maximal profit
Fig.13a shows the Tobin tax value one should take to get maximal income for government (Ttp) as a function of the Producers (P). The curve (+) is especially well fitted between 0% and 2% Producers (this corresponds to reality values for Producers) by

$$Ttp=\sqrt{\frac{P}{25}}+\frac{3}{10}$$

.
* Turnover as a function of Tobin tax

In fig.13b we take 1% Producers and maxwin= 5%. We show the way the turnover will decrease if we introduce a Tobin Tax. The “+” sign is the turnover we get by buying and selling, “x” presents just the turnover by buying and “\*” shows the turnover we get only by selling. To get the maximal profit we have to take a Tobin tax of 0.48% under condition of 1% Producers (we call this value $`T_{max}`$. $`T_{max}`$ is Ttp for one percent Producers). We see here that we have there still a turnover of 73%.
* Return as a function of time
We calculate the return as a function of time as described in the first modification of the Cont-Bouchaud model. We take 1% Producers and 5% maxwin. The first line of fig.14 shows the behaviour for 0% Tobin tax, the next line for 1% Tobin tax and the line which fluctuate about zero (even for t equal 1) is for 0.48% Tobin tax. We see here and with the following tabular that the prices will less fluctuate at the value of Tobin tax where government profit has a maximum.

We got the following tabular by maxwin= 5%. Tt means “Tobin tax”, STFZ is the first time step where the return starts to fluctuate about zero, sd means “standard deviation” and we find in the last column the value of $`r_{}`$ at t=1 which we call $`r_{}1`$.

| Tt | actual returns | STFZ | average | sd | $`r_{}1`$ |
| --- | --- | --- | --- | --- | --- |
| 0 | ($``$0.04%)-0.12% | 1000 | $``$4.1E($``$2) | 2.6E($``$2) | 2.49% |
| 0.01 | ($``$0.1%)-0.08% | 1000 | $``$1.7E($``$3) | 2.7E($``$2) | 2.49% |
| 0.16 | ($``$0.09%)-0.09% | 1000 | 1.4E($``$3) | 2.7E($``$2) | 2.49% |
| 0.2 | ($``$0.09%)-0.11% | 1000 | $``$7.9E($``$3) | 2.9E($``$2) | 2.49% |
| 0.4 | ($``$0.09%)-0.11% | 1000 | $``$4.7E($``$3) | 2.4E($``$2) | 2.46% |
| 0.48 | ($``$0.007%)-0.007% | 0 | $``$1.7E($``$4) | 1.9E($``$3) | 0.001% |
| 0.5 | ($``$0.007%)-0.007% | 0 | $``$1.7E($``$4) | 1.9E($``$3) | 0.001% |
| 1.0 | ($``$0.03%)-0.03% | 70 | $``$2.7E($``$4) | 9.2E($``$3) | 2.49% |

The returns as a function of time have a minimum of fluctuations for $`T=T_{max}`$. This shows that one get both, on the one hand maximal government profit and on the other hand a minimum of return fluctuations which is important to be able to reduce speculation.

The following tabular we get for maxwin= 50%. Remember that in this case the maximum of government profit is above 1.5% Tobin tax.

| Tt | actual returns | STFZ | average | sd | $`r_{}1`$ |
| --- | --- | --- | --- | --- | --- |
| 0 | ($``$0.3%)-1.2% | 1000 | 4.1E($``$1) | 2.6E($``$1) | 24.9% |
| 0.5 | ($``$0.8%)-0.8% | 1000 | $``$4.3E($``$2) | 2.4E($``$1) | 24.9% |

You see that here the return fluctuations are much higher than for maxwin =5%.
* The Return Histogram

Fig.15a: shows from outside to inside the behaviour for 0% Tobin tax and 0.5% Tobin tax for an activity of a= 1%. Fig.15b shows the price histogram for an activity of 50% and a Tobin tax of 1.8%. Unfortunately we have not a realistic price histogram for an activity of 50% and a Tobin tax below 1.8%.

| Kurtosis | | |
| --- | --- | --- |
| activity | Tobin tax | Kurtosis |
| 50% | 1.8 | 160 |
| 50% | 2 | 170 |
| 50% | 10 | 109 |
| 1% | 0 | 103 |
| 1% | 0.5 | 5130 |
| 1% | 1 | 5271 |
| 1% | 10 | 5604 |
* Number of former speculating and still active speculating investors

For Fig.16, we sum up the number of investors who are former speculators (+) or still active speculators (x) about 500 time steps for different values of Tobin tax rate. We define former speculators in the following way: The former speculators are those people who don’t trade because they do not fulfill one of the conditions $`r_{}`$ greater than Tobin tax or $`r_{}`$ less than ($``$ Tobin tax). Here is maxwin= 5% and Producers= 1%. The curves intersect at 0.53% Tobin tax. At $`T_{max}`$ (0.48% Tobin tax) we have here 42% former speculators and 58% still active speculators.

Summary

In conclusion, the first modification of the Cont-Bouchaud model towards an introduction of a Tobin tax does not lead to the desired maximum value for profit as a function of Tobin tax rate. Instead, it discourages most speculators (96%) if it becomes of the order of 0.5%.
The differentiation between these two models (RM and SCBM) does not lead to different values one should propose for a Tobin tax rate. But when we multiply the returns of Cont-Bouchaud model by 10, the Tobin tax rate needs to be multiplied by 1.33.
Results about Tobin tax which one should propose    maxwin return tax rate (RM) tax rate (SCBM)  5% $`\pm 0.8\%`$ 0.12% 0.12%  50% $`\pm 8\%`$ 0.16% 0.16%

| Kurtosis | | |
| --- | --- | --- |
| activity | Tobin tax or model | Kurtosis |
| 50% | original Cont-Bouchaud model | 0.58 |
| 10% | original Cont-Bouchaud model | 4.96 |
| 1% | original Cont-Bouchaud model | 54.72 |
| 50% | $`r_{}0\%`$ | 3.71 |
| 50% | $`r_{}0.01\%`$ | 8.38 |
| 50% | $`r_{}0.16\%`$ | 56.76 |

The second modification leads to a desired maximum for government profit, sufficient turnover and damped return oscillations but not to a realistic return histogram for maximal activity and a Tobin tax below 1.8%. On the other hand it is a further success of this modification that when we work at $`T_{max}`$ we discourage 42% of the speculators.

Acknowledgements

I would like to thank Prof. Stauffer for advice .

References

1. Microsoft Encarta 2001 encyclopaedia: Bretton Woods
http://www.microsoft.com.england/
2. Anja Osterhaus, Kai Mosebach, Peter Wahl and Peter Waldow:
Spekulieren regulieren: Kapital braucht Kontrolle,
WEED und Kairos Europa
http://www.weedbonn.org/
3. Danny Cassimon: Financing sustainable development using a feasible Tobin tax,
Journal of International Relations and Development 4, 157 (2001)
http://www.ub.uni-koeln.de/usb/dienste/ezb
4. Thomas Palley: Destabilizing speculation and the case for an International Currency Transaction tax,
Challenge, 44, 70 (2001) http://www.ub.uni-koeln.de/usb/dienste/ezb
5. Peter Wahl and Peter Waldow: Devisenumsatzsteuer: Ein Konzept mit Zukunft, WEED, http://www.weedbonn.org/
6. Rama Cont and Jean-Philippe Bouchaud: Herd behavior and aggregate fluctuations in financial markets, Macroeconomic Dynamics 4, 170 (2000)
7. Dietrich Stauffer: Monte-Carlo-Simulation mikroskopischer Boersenmodelle, Physikalische Blätter, 55, 49 (1999)
8. Dietrich Stauffer: Percolation models of financial market dynamics,
Adv.Compl.Syst. 4,19(2001)

For Further Reading

* Howard M. Wachtel: Tobin and other global taxes,
Review of International Political Economy 7, 335 (2000)
http://www.ub.uni-koeln.de/usb/dienste/ezb
* Robert W. Dimand and Mohammed H.I. Dore
Keynes casino capitalism, Bagehot’s international currency,
and the Tobin tax: historical notes on preventing currency fires
Journal of Post Keynesian Economics 22, 515, (2000)


format: text

text:
# Experimental evidence for high frequency transverse-like excitations in glasses

## Abstract

The dynamic structure factor of glassy and liquid glycerol has been measured by inelastic X-ray scattering in the exchanged momentum ($`Q`$) region $`Q`$=2$`÷`$23 nm-1 and in the temperature range 80$`÷`$570 K. Beside the propagating longitudinal excitations modes, at low temperature the spectra show a second non $`Q`$-dispersing peak at $`\mathrm{}\mathrm{\Omega }_T`$$``$8.5 meV. We assign this peak to the transverse dynamics that, in topologically disordered systems, acquires a longitudinal symmetry component. This assignment is substantiated by the observation that, in the liquid, this peak vanishes when the structural relaxation time $`\tau _\alpha `$ approaches $`\mathrm{\Omega }_T^1`$, a behavior consistent with the condition $`\tau _\alpha \mathrm{\Omega }_T^1`$$`>>`$1 required for the existence of a transverse-like dynamics in the liquid state.

Understanding of the high frequency dynamics in the glassy state has recently progressed thanks to the development of the Inelastic X-rays Scattering (IXS) technique, allowing to measure the dynamics structure factor, $`S(Q,\omega )`$, in the mesoscopic momentum transfer, $`Q`$, range. This advance established the presence of longitudinal acoustic-like excitations  in topologically disordered systems. These excitations exist up to momentum transfer values close to the first maximum of the static structure factor, $`S(Q)`$, and have a characteristic $`Q`$-dependent broadening related to the topological disorder . These results confirmed earlier predictions of many Molecular Dynamics (MD) and Normal Mode Analysis (NMA) simulation studies of disordered systems . They are also consistent with a recent extension of the Mode Coupling Theory (MCT) to the glassy phase .

Despite these successes on the study of sound propagation at THz frequencies in topologically disordered systems, a satisfactory understanding of the high frequency transverse dynamics in glasses is still missing. Interestingly, beside the peaks associated with sound modes, theoretical and numerical works also predict a second excitation in the $`S(Q,\omega )`$ or in the related longitudinal current spectra . This feature has been suggested to indicate the existence of a transverse-like dynamics in disordered systems, and it has been seen to survive also in the liquid state . The main reason supporting the transverse-like nature of this second peak lies in the fact that it appears, at high $`Q`$’s, in both the transverse and the longitudinal spectra, though being much more intense in the former ones. Other general characteristics of this second excitation are: i) It appears in the spectra at $`Q`$ values larger than approximately one half the value of the first maximum of the $`S(Q)`$; ii) It shows a weakly $`Q`$-dispersing behavior; and iii) It has an ”harmonic” origin, as pointed out by its presence in both MD and NMA simulations. In spite of these convincing numerical results, the firm experimental observation of this feature in glasses is still missing. It would be, therefore, of great interest to understand the behavior of this transverse dynamics in the glassy state, at the glass transition, and eventually, the conditions for its existence in the liquid state.

This Letter is dedicated to the experimental identification of this second excitation in the high frequency dynamics of glycerol, an easily experimentally accessible prototype glass forming system. Using IXS, we report that in the glass, beside the sound modes, in the $`S(Q,\omega )`$ there is indeed a second excitation at $`\mathrm{}\mathrm{\Omega }_T`$=$`E_T`$$``$8.5 meV, showing up at exchanged momenta larger than 7 nm-1 with almost no $`Q`$ dispersion. With increasing temperature this feature does not change energy, and progressively disappears in the tails of the central peak, becoming no longer observable above $``$500 K. At these high temperatures the width of the central peak of the $`S(Q,\omega )`$, consistently with the extrapolation of the temperature dependence of the viscosity, indicates that the structural relaxation time, $`\tau _\alpha `$, approaches the inverse frequency of the second peak. This observation suggests that this secondary peak (SP) does reflect the transverse dynamics. Indeed, the transverse dynamics is fully relaxed in the liquid at high temperatures, and appears as a vibrational contribution at low $`T`$, when the condition $`\mathrm{\Omega }_T\tau _\alpha (T)`$$`>>`$1 is fulfilled .

The experiment has been carried out at the very high resolution beam-lines ID16 and ID28 of the European Synchrotron Radiation Facility. The instruments consist of a backscattering monochromator and five independent analyzer systems, held one next to each other with a constant angular offset on a 7 m long analyzer arm. The utilized Si(11,11,11) configuration, with incident photon energy of 21748 keV, gives an instrumental energy resolution of 1.6 meV (FWHM) and an offset of 3 nm-1 between two neighbor analyzers. The momentum transfer is selected by rotating the analyzer arm. The energy scans at constant $`Q`$ were performed by varying the monochromator temperature with respect to that of the analyzer crystals. For the low temperature measurements the glycerol sample, high purity anhydrous $`C_3O_3H_8`$, was put in a 20 mm long pyrex cylindrical cell closed by 1 mm thick diamond windows with a 4 mm opening. The cell was loaded inside an argon glove box and then placed in a closed cycle cryostat. The high temperatures measurements have been performed loading a 20 mm long nickel cylinder closed by two sapphire windows, (1 mm thick, 8 mm diameter) and heated in a standard oven operated in vacuum.

The IXS data collected on the glycerol glass sample at $`T`$=79 K are reported in Fig. 1. Beside an intense central line, the spectra show a $`Q`$ dependent inelastic signal. In the low $`Q`$ region, this is characterized by a single feature whose energy position and width increase with $`Q`$. This excitation is due to the propagating longitudinal acoustic modes, as already established in previous works . Thanks to the increased statistical accuracy with respect to previous experiments, in the present data, one observes also that at $`Q`$ larger than 7 nm-1 a new weakly dispersing feature appears at $``$10 meV. This feature, the secondary peak shown in the right panel of Fig. 1, is particularly evident in the spectra at the highest reported $`Q`$ values. The data have been fitted by the convolution of the experimental resolution function with a model function, weighted by the detailed balance, composed by: 1) a delta-function to account for the central line, 2) a Damped Harmonic Oscillator (DHO) for the longitudinal mode, and 3) a lorenzian for the SP, which is statistically relevant only in the spectra at $`Q6`$ nm-1. This model well represents the experimental data, as shown in Fig. 1.

In Fig. 2, we report the energy positions of the two features: the longitudinal acoustic mode ($`\mathrm{\Omega }_L`$) and the SP ($`\mathrm{\Omega }_T`$). The slope of $`\mathrm{\Omega }_L`$ consistently reproduces, in the low-$`Q`$ linear dispersion region, the correct value of the velocity of sound ($`v_L`$=3370$`\pm `$30 m/s). In the high $`Q`$ region, we still observe a dispersion of $`\mathrm{\Omega }_L`$ that, as expected, has a maximum at a $`Q`$-value approximately half way from the maximum of the $`S(Q)`$, and a minimum in the $`Q`$ region where the $`S(Q)`$ has a maximum. This dispersion of $`\mathrm{\Omega }_L`$ is consistent with the concept of pseudo Brillouin zone in disordered systems, as discussed elsewhere . The SP is observed at the essentially $`Q`$-independent energy $`\mathrm{}\mathrm{\Omega }_T`$=8.5$`\pm `$0.5 meV. This feature, as can be directly evinced from a more detailed analysis of the data in Fig. 1, shows an interesting $`Q`$-dependence in its intensity, which increases with increasing $`Q`$. This may be due to various effects, among which the expected $`Q^2`$ dependence of the cross-section of a non dispersing mode (localized or internal molecular mode), and/or the possible $`Q`$-dependence of the longitudinal vs transverse symmetry components of the eigenvectors associated to this mode. It is obviously crucial to investigate these points to understand the origin of the SP. To this purpose we studied this feature as a function of temperature in order to investigate its evolution across the liquid-to glass transition ($`T_g180`$ K) and up to the normal liquid phase. This temperature dependence has been studied at $`Q`$=17 nm-1 from T=170 K (in the glassy phase) to T=570 K. The Stokes side of the spectra at selected temperatures is reported in Fig. 3.

The $`Q`$ value of 17 nm-1 has been chosen in order to neglect the contribution of the longitudinal mode, while having still the SP well pronounced in the glass. The fitting function consists of a delta function for the central line (replaced by a Cole-Davidson function for $`T400`$ K, when the intrinsic broadening can be distinguished by the mere resolution linewidth), and a lorenzian function for the SP. Both spectral features show a striking $`T`$-dependence: increasing $`T`$ the central line gets increasingly broader and the SP becomes hardly visible already at $``$350 K. As long as the SP is statistically significant one finds that its energy position and width are $`T`$-independent, while its intensity decreases. The fits to the data provide a quantitative description of these behaviors, and, as reported in the inset of Fig. 3, the ratio between the integrated intensities of the SP to the central peak sharply decreases at high temperatures. As shown in Fig. 4, this behavior is opposite to the increase that one would normally expect. Indeed: i) The central peak intensity should slightly decrease, following the Debye-Waller $`T`$ dependence, and ii) The SP intensity should increase following the Bose-Einstein (BE) statistics.

To emphasize further the statistical significance of the SP intensity behavior, and to show that this feature is not simply lost in the tails of the increasingly broader central peak, we report at $`T`$=563 K the simulation (dot-dashed line) of how the spectrum should look like under the following assumptions: i) A central line with a constant integrated intensity (the same as the spectrum at $`T=170`$ K) and the observed width, ii) A SP obtained from the glass spectrum at $`T`$=170 K, keeping constant the energy position and width, and increasing the integrated intensity according to the BE statistics. This simulation underlines the observed disappearance of the SP at high $`T`$ beyond any statistical uncertainty. The temperature dependence of the SP allows us then to exclude on a general ground that this excitation is due to an internal molecular mode. Indeed, if this were the case, one should expect a behavior giving rise to the simulated spectrum in the upper panel of Fig. 3.

Finally, the broadening of the quasi-elastic line which appears in the high-temperature spectra is quantified in Fig. 5, where we report the structural relaxation time as obtained from the Cole-Davidson contribution to the fitting function which we have used. These values are in good agreement with light scattering and viscosity data , testifying the reliability of the whole presented data analysis.

On the basis of the reported results, we propose that the SP is due to the transverse-like acoustic dynamics in a topologically disordered structure. In fact, in the glycerol glass two excitation branches are present, as shown in Fig. 2. This result is very similar to those obtained in MD simulations, where indeed these two excitations have been assigned, respectively, to the acoustic longitudinal-like and to the transverse-like dynamics on the basis of the analysis of calculated longitudinal and transverse current spectra. This assignment is also consistent with the observation that the SP intensity increases with increasing $`Q`$. Indeed, on decreasing the length scale, the local disorder forbids more and more the pure polarization of the eigenvectors, thus leading to the mixing of the longitudinal and transverse symmetries. Clearly, it is exactlty due to this mixing that the longitudinal part of the transverse-like excitation comes out in the $`S(Q,\omega )`$. This interpretation on the origin of the SP is additionally supported by the behavior observed in the liquid phase. Indeed, a vibrational transverse-like dynamics in the liquid state can only be supported when the structural relaxation time is much longer than the transverse vibration period (elastic limit), i. e. when the local structure is frozen for long enough time that a shear stress does not decay through relaxational processes. Conversely, in liquids at high temperature, where the condition $`\mathrm{\Omega }_T\tau _\alpha `$$`>>`$1 is no longer fulfilled, the vibrational transverse dynamics is no longer allowed and the SP disappears. It is important to point out that this behavior is distinctly different from that of the longitudinal acoustic excitations. In fact - as experimentally observed - these latter ones keep their vibrational nature independently of the value of $`\mathrm{\Omega }_L\tau _\alpha `$, which only affects the value of the sound velocity and absorption.

In conclusion, we report experimental evidences of the existence of a transverse-like dynamics in glasses and liquids at THz frequencies. This dynamics gives rise to a well defined and $`non`$ Q-dispersing excitation, consistently with MD simulations. We expect that this feature is a general property of disordered matter, and that it should be universally observed. Indications in this direction come not only from MD simulations , but also from experimental data on glassy SiO2 and liquid water . Future work on the dynamics in disordered systems should consider the contribution of this high frequency transverse-like dynamics to the vibrational density of states. This could be particularly relevant in the case of glasses, due to the possible contribution and/or relation of this transverse-like dynamics to the well known low temperature anomalies.

We acknowledge C. Henriquet, H. Mueller, and R. Verbeni to help in the sample handling.


text:
# Statistical Hadronization of Supercooled Quark-Gluon Plasma

## I Introduction

The hydrodynamical models have been used extensively to study the evolution of the hot, strongly interacting matter created in relativistic heavy ion collisions. These models apply on the space-time region, where the initial, hard processes have reached the stage where the local thermal equilibrium can be assumed, and the strong interactions between constituent particles are very frequent.

On the other hand, the thermal statistical models applied to describe the final hadron abundances have been very successful for nucleus-nucleus ($`AA`$) features ; cleymans319 ; heppe ; cleymans5284 ; cleymans3319 , proton-nucleus ($`pA`$) cleymans2747  and even for elementary $`pp`$, $`p\overline{p}`$ and $`e^+e^{}`$ becattini485 ; becattini269  reactions. The latter ones, particularly, suggest the statistical nature of the hadronization process.

In this work, we study the fast hadronization and chemical freeze-out (CFO) of locally thermalized quark gluon plasma (QGP) described by hydrodynamical evolution. This process is idealized by sudden hadronization over a three dimensional hypersurface. The matter crossing the hypersurface is controlled by conservation of energy momentum- and relevant current conservation laws, and additionally, by assumption of apparent thermal and chemical equilibrium distribution of the resulting hadron gas (HG). By apparent equilibrium distribution we mean that although there is clearly no room for kinetic equilibration in elementary collisions – or in fast, simultaneous phase transition and CFO in nuclear collisions – the final hadron spectra are dictated by maximum entropy bound by conservation of energy and charge densities.

It is shown, that the first order quasistatic phase transition is far too slow CsK92 ; CsK9  to give the hadron chemical decoupling time of $`t_{\mathrm{CFO}}10\mathrm{fm}/c`$ determined experimentally, see csorgo  and references therein. Thus, in order to avoid the entropy decrease in the non-equilibrium hadronization, QGP must be allowed to supercool, i.e. to develop mechanical instability before the phase transition csorgo . Although the simultaneous phase transition and CFO are assumed to be a non-equilibrium process, we can still exploit the apparent equilibrium parametrization – the consequence of statistical nature of hadronization.

We will show that the shock-like hadronization of supercooled QGP leads to the change in collective flow profile, and re-heating of the system. We study the system with various choices of the equation of state (EoS) on both sides of the FO hypersurface.

## II The Chemical Freeze Out Process

The fast hadronization process, idealized to take place on the zero-volume hypersurface, leads to a discontinuity in energy-momentum- and charge conservation equations. In general, this leads not only to change in density quantities in LRF, but to the change in flow velocity profile as well FO1 ; FO3 .

Denoting post freeze out quantities by subscript $`\mathrm{FO}`$, the energy-momentum ($`T`$) conservation at the surface element $`d\sigma _\nu `$ leads to a set of four equations

$$T^{\mu \nu }d\sigma _\nu =T_{\mathrm{FO}}^{\mu \nu }d\sigma _\nu .$$
(1)
In the isospin symmetric case, the electric charge conservation is trivial, and we are left with local baryon number and strangeness conservation equations:

$`N_B^\nu d\sigma _\nu `$ $`=`$ $`N_{B,\mathrm{FO}}^\nu d\sigma _\nu `$ (2)
$`N_S^\nu d\sigma _\nu `$ $`=`$ $`N_{S,\mathrm{FO}}^\nu d\sigma _\nu .`$ (3)
Here, we restrict our considerations to time-like FO hypersurfaces in order to avoid currents entering from post-FO to pre-FO side. The complications in the general case, where the space-like FO is included, are discussed extensively in FO1 ; FO3 . For the time-like hypersurface, there is always a proper Lorentz transformation for each point $`x`$ such that solving the equations (1,2,3) can be carried out in a frame, where flow velocities are $`u(x)=\gamma (1,0,0,v)`$ and $`u_{\mathrm{FO}}(x)=\gamma _{\mathrm{FO}}(1,0,0,v_{\mathrm{FO}})`$ on pre- and post-FO sides, respectively. After solving the FO equations, the actual flow velocity $`u_{\mathrm{FO}}=\gamma _{\mathrm{FO}}(1,\stackrel{}{v}_{\mathrm{FO}})`$ is obtained by a simple spatial rotation. Provided with these tools, only two of the four equations (1) are independent.

Usually, the strangeness in hydrodynamical simulations is assumed to be homogeneously distributed, so the condition $`n_S(x)=n_{S,\mathrm{FO}}(x)=0`$ binds the parameters associated with strangeness conservation.

The process described is generally non-adiabatic, but the entropy constraint

$$S^\nu d\sigma _\nu S_{\mathrm{FO}}^\nu d\sigma _\nu $$
(4)
must be satisfied in every point on the FO hypersurface.

### II.1 The Statistical Post Freeze Out Hadronization

Statistical models were applied for high energy collisions Fe:50 ; Po:51 ; La:53  from the beginning of this field. In the last decade a significant development of these models and the extension of the area of their applicability took place. The main reason for this is a surprising success of the statistical approach in reproducing new experimental data on hadron multiplicities in nuclear ($`AA`$) features ; cleymans319 ; heppe ; cleymans5284 ; cleymans3319  and elementary ($`e^+e^{}`$, $`pp`$, $`p\overline{p}`$) collisions becattini485 ; becattini269 . One of the important results of the analysis of hadron yield systematics at high energies (SPS and higher) done within the statistical models is the approximate independence of the temperature parameter ($`T=160÷180`$ MeV) of the system size and collision energy. Another important feature found in statistical analyses is the common freeze-out condition, energy per hadron $`E/N1`$ GeV, found for all systems from GSI 2 GeV A NiNi to SPS 160 GeV A PbPb collisions jeanPRL ; features . These results can be attributed to the statistical character of the hadronization process.

Calculations within statistical models are straightforward when the mean number of particles of interest is large and consequently it is enough to fulfill the conservation laws in the average sense, i.e. the grand canonical (GC) description can be used. In GC ensemble, the mean particle multiplicities are just proportional to the volume $`V`$ of the system. Thus, the particle densities and the ratios of the multiplicities of two different particle species, which are usually used for the comparison with the data, are volume independent.

This simple volume dependence is however not valid any more for a small system in which the mean particle multiplicity is low, like in $`pp`$ collisions. In this case the material conservation laws should be imposed exactly on each charge configuration of the system, i.e. canonical ensemble (CE) description should be used. This condition introduces a significant correlation between particles who carry conserved charges (see keran ; kerabeca , and references therein).

In PbPb collisions at the SPS collider and AuAu reactions at RHIC we produce large and hot systems, where the corrections are negligible and GC description is satisfactory for most of the produced particles. Nevertheless, the number of strange particles created is rather low, and the net strangeness is exactly zero. Therefore the CE description would be preferable for the strange particles (we are not going to include particles with charm or more heavy quarks). However, the basic assumption of the hydrodynamics is the local thermal and chemical equilibrium, whereas the canonical conservation laws can only be realized globally. This prevents us using CE in post FO, which is nothing but the extension of the hydrodynamical part with different EoS. This drawback is not of a serious concern, because the conditions reached in high energy heavy ion systems are expected to fulfill the requirements for GC description kerabeca .

In the relativistic GC ensemble for ideal hadron gas (HG), the properties of the matter in unit volume are parametrized by temperature $`T`$ and fugacities $`\lambda _i`$ (or chemical potentials $`\mu _i`$) for conserved charges. For example, the pressure and energy density are $`P=P(T,\lambda _B,\lambda _S)`$ and $`e=e(T,\lambda _B,\lambda _S)`$ if we omit the fugacity $`\lambda _Q`$ associated with electric charge conservation.

In case of sudden freeze out there might not be sufficient time to achieve chemical equilibration of number of strange- and anti-strange quarks. Thus, an over- or underpopulation of strange hadron species may persist after hadronization. This can, however, be treated in the GC approach as we will see.

Now that the thermal ideal gas of hadrons provides us with tools to calculate post-FO quantities, we can collect the set of equations needed to describe the simultaneous FO and hadronization taking place at a time-like hypersurface. For the sake of simplicity, we choose a hypersurface of constant coordinate time, $`d\sigma _\nu =(1,0,0,0)`$, which is, of course, connected with any time-like hypersurface by a proper Lorentz transformation. Recalling the energy-momentum, baryon current and strangeness conservation equations yields

$`(e+P)\gamma ^2P`$ $`=`$ $`(e_{\mathrm{FO}}+P_{\mathrm{FO}})\gamma _{\mathrm{FO}}^2P_{\mathrm{FO}}`$ (5)
$`(e+P)v\gamma ^2`$ $`=`$ $`(e_{\mathrm{FO}}+P_{\mathrm{FO}})v_{\mathrm{FO}}\gamma _{\mathrm{FO}}^2`$ (6)
$`n_B\gamma `$ $`=`$ $`n_{B,\mathrm{FO}}\gamma _{\mathrm{FO}}`$ (7)
$`n_S\gamma `$ $`=`$ $`n_{S,\mathrm{FO}}\gamma _{\mathrm{FO}}=0.`$ (8)
Given the pre-FO quantities, the solution of this set of equations gives the post-FO parameters: $`v_{\mathrm{FO}},T_{\mathrm{FO}},\lambda _{B,\mathrm{FO}}`$ and $`\lambda _{S,\mathrm{FO}}`$, flow velocity of the fluid element, temperature and fugacities for conserved currents, respectively. These parameters describe completely the hadron spectra and other statistical quantities at the LRF of the fluid element.

In order to take into account the possible over- or underpopulation of strange- and anti-strange quarks in post-FO side, a parametrization of the conservation of the number of $`s,\overline{s}`$ pairs must be introduced. In the GC formulation, a conservation law gives rise to a fugacity parameter. The one associated with the number of $`s,\overline{s}`$ pairs, $`n_{s,\overline{s}}`$, is usually called $`\gamma _S`$, first introduced in Ref. gammas . The assumption of the survival of $`n_{s,\overline{s}}`$ over the FO hypersurface yields yet another equation to be included in the set above:

$$n_{s,\overline{s}}\gamma =\left(n_{s,\overline{s}}\right)_{\mathrm{FO}}\gamma _{\mathrm{FO}}.$$
(9)
## III Numerical Studies

For quantitative studies of the FO, we have chosen a framework of Bjorken model bjorken  for the expanding QGP. This allows us to cover many FO scenarios with relative ease. Within the Bjorken model, the evolution of matter in one spatial dimension $`z`$ and charge densities $`n_i`$ is governed by equations

$`{\displaystyle \frac{e}{\tau }}+{\displaystyle \frac{e+P}{\tau }}`$ $`=`$ $`0`$ (10)
$`{\displaystyle \frac{P}{y}}`$ $`=`$ $`0`$ (11)
$`{\displaystyle \frac{n_i}{\tau }}+{\displaystyle \frac{n_i}{\tau }}`$ $`=`$ $`0,`$ (12)
where $`\tau =\sqrt{t^2z^2}`$ is the proper time and $`y`$ is the rapidity of a given fluid element. For vanishing net charges, thermodynamical quantities are constant along constant proper time curves on $`(t,z)`$ plane. Taking the FO to take place at constant coordinate time, the proper time of freezing out fluid element decreases with increasing spatial coordinate, so the temperature is an increasing function of $`z`$. The constant coordinate time choice is made in order to have a clear picture of the FO process in different thermal circumstances. In addition to the equations above, one needs an equation to describe the thermodynamical structure of the evolving matter, the equation of state.

### III.1 The Equation of State - Supercooled QGP

Three different equations of state for supercooled quark-gluon plasma are considered. The QGP is assumed to be an ideal gas of three flavors (u,d,s) of quarks and their antiquarks. We will model the thermodynamics of the QCD vacuum in terms of the MIT bag model jaffe:origBagmodel  by introducing a phenomenological bag constant $`B`$. In this model, confinement can be thought of as a rule which allows quarks to inhabit only regions of a ”false vacuum”, which has minimum energy density $`B`$. This is due to the fact that quarks can not be found in physical vacuum but only inside hadrons that are small bags of the false vacuum containing triplets or pairs of quarks. In QGP, all the space is endowed with this energy density $`B`$.

Light quarks ($`u`$,$`\overline{u}`$,$`d`$,$`\overline{d}`$) can be considered as massless, but the mass of strange quark can not be neglected. For massless quarks and gluons, integral in partition function $`Z_{\mathrm{QGP}}`$ can be evaluated analytically, but the contribution of strangeness must be calculated numerically. It is convenient to split $`Z_{\mathrm{QGP}}`$ into four parts:

$$\mathrm{ln}Z_{\mathrm{QGP}}=\mathrm{ln}Z_f+\mathrm{ln}Z_b+\mathrm{ln}Z_s+\mathrm{ln}Z_{vac},$$

where $`\mathrm{ln}Z_f`$, $`\mathrm{ln}Z_b`$ and $`\mathrm{ln}Z_s`$ are the contributions of massless quarks, gluons and massive strange quarks respectively. $`\mathrm{ln}Z_{vac}`$ is the contribution of the bag constant added to the energy-momentum tensor. Evaluation of analytical parts of $`\mathrm{ln}Z_{\mathrm{QGP}}`$ leads to the expressions suhonen:QGP

$`\mathrm{ln}Z_f`$ $`=`$ $`V({\displaystyle \frac{7}{30}}\pi ^2T^3+\mu _q^2T+{\displaystyle \frac{1}{2\pi ^2}}\mu _q^4{\displaystyle \frac{1}{T}})`$ (13)
$`\mathrm{ln}Z_b`$ $`=`$ $`{\displaystyle \frac{8}{45}}\pi VT^3`$ (14)
$`\mathrm{ln}Z_{vac}`$ $`=`$ $`{\displaystyle \frac{BV}{T}},`$ (15)
where $`\mu _q`$ is a light quark chemical potential, $`\mu _q=\mu _B/3`$. The total strangeness is zero during the whole collision evolution. If one assumes that the strangeness produced in a collision is spread homogeneously in QGP, then $`n_S`$ must be zero in any given fluid element, so the contribution of $`s`$ and $`\overline{s}`$ quarks is

$$\mathrm{ln}Z_s=\frac{6V}{\pi ^2}_0^{\mathrm{}}𝑑pp^2\mathrm{ln}\left(1+e^{\beta \sqrt{p^2+m_s^2}}\right),$$
(16)
where $`m_s`$ is the mass of the strange quark, here chosen to vary between 150 and 250 MeV.

If one puts the bag constant to zero (B$``$0), then $`\mathrm{ln}Z_{vac}`$ term vanishes and we end up with the normal quantum distribution for the ideal gas. In this case, the explicit form of the three flavor QGP EoS is111The massive $`s,\overline{s}`$ quarks give a little correction to this simple rule, but we suppress that in the text.

$$P(T,\mu _i)=\frac{1}{3}e,e(T,\mu _i)=e_{SB}.$$
(17)
In the case of finite bag constant, EoS reads:

$$P(T,\mu _B,B)=\frac{1}{3}e_{SB}B,e(T,\mu _B)=e_{SB}+B.$$
(18)
The third equation of state in addition to ones with finite and zero MIT bag constants considered here was suggested in the Ref. jenk ; jenk2  (and first time applied for heavy ion collisions in jenkjenk ) for the case of baryon free QGP ($`\mu _q=0`$) with two quark flavors:

$$P(T)=\frac{1}{3}e(T)bT,e(T)=e_{SB}.$$
(19)
We call this a spinodal EoS, inspired by the existence of a local minimum in pressure profile (19). It is easy to check that $`e`$ and $`P`$ are connected by the thermodynamical equation

$$e=T\frac{dP}{dT}P.$$
(20)
This EoS can be justified as resulting from the non-perturbative QCD effects: The lattice calculations (see for example blum:QCD ) show that close to the critical temperature for hadronic matter, QGP phase transition energy density has a sharp increase and soon saturates with an equilibrium Stefan-Boltzmann value $`e(T)=e_{SB}(T)`$, while pressure increases much more slowly and reaches Stefan-Boltzmann limit only at very high $`T`$. Such a pressure suppression is presented by eqs. (19).

The spinodal EoS considered here will be of form (19) but with three quark flavors and finite net baryon density:

$$P(T,\mu _i)=\frac{1}{3}e(T,\mu _i)bT,e(T,\mu _i)=e_{SB}.$$
(21)
Comparing these expressions with the bag model EoS one can see that for the pressure the bag constant, $`B`$, is replaced by T and $`\mu `$ dependent term $`bT`$, while for energy density the analogy with bag model disappears due to the relation (20).

If the phase transition temperature $`T_c`$ is known, parameter $`b`$ can be fixed from the Gibbs condition $`P_{HG}(T_c,\mu )=P_{QGP}(T_c,\mu )`$. This same condition fixes the constant $`B`$ within the bag model.

### III.2 Freeze Out Illustrated

The post-FO matter is described by the quantum ideal gas, composed of hadrons up to a mass of $`2.5`$ GeV, listed in the year 2000 issue of Review of Particle Physics pdg . In order to satisfy the conservation equation (9) for strange quark pairs, additional fugacity $`\gamma _S`$ is introduced for each strange particle $`i`$ as $`\lambda _i\lambda _i\gamma _S^{|S_i|}`$. Additionally, the mesons carrying $`s\overline{s}`$ pairs must be taken into account. In this work, the number of meson $`i`$ is affected by the fugacity factor $`\lambda _i=\gamma _S^{2c_s}`$, where $`c_s`$ is the relative $`s\overline{s}`$ content in the meson. We take $`c_s=0.5`$ for $`\eta `$ mesons, and $`c_s=1`$ for $`\varphi `$, $`f_0(980)`$, $`f_1(1510)`$, $`\varphi (1680)`$ and $`\varphi _3(1850)`$.

In figure 1 we show the pressures of the HG and QGP as functions of temperature. The parameters appearing in different equations of state for QGP are fixed by setting the critical temperature to $`T_c=160`$ MeV. The pressure minimum in the spinodal EoS is labeled by $`T_m`$. Of course, the critical temperature varies with baryon density (or $`\mu _B`$), but we find this variation to be negligible within reasonable range of FO density. The strangeness saturation parameter $`\gamma _S`$ is set to one, corresponding to the full strangeness equilibration. We always let the QGP side be in full strangeness equilibrium, so the Gibbs condition for the adiabatic, isothermic phase transition compels $`\gamma _S=1`$. In the following, however, the phase transition is neither isothermic nor adiabatic, so the change in fugacities is allowed and unavoidable.

The figure 2 depicts the variation of some relevant variables along the coordinate time $`t=10`$ fm$`/c`$ in the Bjorken model. Going from the edge of the light cone ($`z=10`$ fm) to the non-flowing center of the system ($`z=0`$ fm), we describe the changes of quantities in proper time of the given fluid element from $`\tau =0`$ to $`\tau =10`$. This is, going from the origin to the right, we go from the later, cooler and more dilute stage of evolution to the earlier, hotter and more dense stage. We have chosen the initial values for energy- and baryon density $`e_0=5`$ GeV fm-3 and $`(n_B)_0=1`$ fm-3, respectively, at the time $`\tau =1`$ fm$`/c`$. For the ideal gas QGP EoS, the higher $`e_0=8`$ GeV is used in order to keep the figure more descriptive. The model parameters $`B`$ in the MIT bag EoS and $`b`$ in the spinodal EoS are fixed to produce critical temperature $`160`$ MeV, while for the ideal gas EoS there is no critical temperature. The arbitrary value $`T_c=160`$ MeV is chosen to give similar scaling for temperatures in all cases. The ratio $`R`$ of entropy currents in HG and QGP stays well above one for bag and spinodal models all the way up to unrealistic FO conditions, so the substantial increase in entropy is expected in fast simultaneous FO and hadronization. For the reference, the $`R`$ for the ideal gas QGP is, as expected, far below one. The crossing of HG temperature $`T_H`$ with $`T_c`$ marks the endpoint of the physically allowed FO. For the bag model, there is no such crossing, but the FO stays unphysical with all reasonable values of QGP temperature $`T_Q`$. We could choose lower initial value for the QGP energy density, but the the degree of supercooling, $`T_Q/T_c`$, would be of order $`0.5`$ at the HG critical point. For the spinodal model QGP, the case is different. At the point $`T_H/T_c=1`$, the degree of QGP supercooling is about $`24\%`$, and stays rather constant when going towards the cooler system.

In figure 3 we illustrate the changes in flow velocities and strangeness saturation parameter in the circumstances equal to ones in figure 2. For both cases, bag- and spinodal QGP, the flow is decelerated at the FO to HG, indicated by the ratio of HG and QGP velocities, $`v_H/v_Q`$. At the point $`T_H=160`$ MeV for the spinodal EoS, this ratio is $`0.80`$, indicating the final HG flow velocity of 0.54$`c`$. The $`\gamma _S`$, resulting from the survival of $`s\overline{s}`$ pairs through the FO process, is calculated for two different values of $`s`$ quark mass $`m_s`$. $`\gamma _{S_1}`$ corresponds to $`m_s=150`$ MeV and $`\gamma _{S_2}`$ is for $`m_s=250`$ MeV. Comparing the figures, we find $`\gamma _S`$ to be very sensitive to the choice of QGP EoS and the $`m_s`$. It is worth noting, that fixing $`\gamma _S`$ to one or varying the $`m_s`$ gives only negligible change to other quantities in figures 2 and 3.

## IV Conclusions

We have found that the realistic and accurate study of the freeze-out process is important and cannot be neglected. Our results show that the FO process is very sensitive on the properties of the EoS. Since our main goal is to identify the EoS from the data this is an observation of basic importance.

The correct treatment shows that FO is not even possible from arbitrary kind of initial state, and the entropy constraint is a sensitive condition.

From the point of strangeness, we can also conclude that strangeness production is very sensitive to the correct FO treatment and to the pre FO EoS. Thus, strangeness data not only provide a signal of QGP formation, but with proper and realistic description of freeze out, strangeness provides the most sensitive signal indicating different properties of the pre FO EoS.

In conclusion, this study shows that collective, continuum reaction models, like fluid dynamical (FD) models (one fluid FD, multi - fluid FD, chiral FD), can and must be supplemented with realistic Freeze Out treatment to evaluate measurable data. These calculations indicate that this is now possible cell by cell in FD models, although it requires more than average computational capacity, and needs preferably high performance parallel computing.

## Acknowledgments

We acknowledge the constructive discussions with Esko Suhonen. Two of us (A. K. and V. M.) acknowledge the support of the Bergen Computational Physics Laboratory in the framework of the European Community - Access to Research Infrastructure action of the Improving Human Potential Programme.


text:
# Comment on ”Are financial crashes predictable?”

In a recent paper published in this journal, Laloux et al.  criticized the use of eq.

$$p\left(t\right)=A+B\left(t_ct\right)^\beta +C\left(t_ct\right)^\beta \mathrm{cos}\left(\omega \mathrm{ln}\left(t_ct\right)\varphi \right)$$
(1)
as a predictive tool for the detection of periods of large declines in the financial markets as first suggested in . The criticism was based on a rather primitive “eye-balling analysis” lacking the consistent methodology used in the identification of more than twenty crashes on the US, Hong-Kong and FX markets alone which all were preceded by a market bubble parameterised by eq. (1) . Specifically, a well-defined optimisation algorithm was used fitting eq. (1) as well as spectral analysis and analysis of synthetic data . They furthermore wrote “We want to publicly disclose here the fact that on the basis of a log-periodic analysis, a crash on the JGB market for the end of May 1995 was predicted. On this basis, one of us (JPA) bought for $`\$\mathrm{1.000.000}`$ of put options … The crash did not occur and only a delicate trading back allowed to avoid losses”. This represents a severely distorted picture of a scientific experiment. First, the analysis (performed by the author) and experiment was not done in May 1995, but in July 1995. In fig. 2 we see eq. (1) fitted to the Japanese bond price in the correct time period of the experiment. Note that the values obtained for the parameters $`\omega `$ and $`\beta `$ (see caption) are on the border of what has since been identified prior to over twenty crashes on the US, Hong-Kong and FX markets alone . The result that was borne out of the analysis of July 1995 was that JGB might crash around $`t_c1995.63`$ 19 Aug. 1995. In fig. 2, we see that the market peaked on Wednesday 16 Aug. 1995 at a price $`3.96`$ only to decline over $`35`$ trading days later to a price of $`3.36`$ on 4 Oct. 1995, i.e., a total decline of $`15.2\%`$. Admittedly, this does not fit the conventional picture of a market crash, as it is too slow in its unfolding. However, considering the lesser volatility generally seen in the bond markets, this is not very surprising.

In  it has been shown that a stretched exponential

$$f\left(x\right)=a\mathrm{exp}\left(bx^z\right)$$
(2)
is a reasonable null-hypothesis for the bulk of the drawdown distribution of the FX, major stock markets as well as individual stocks. A drawdown is defined as a persistent decrease in the price over consecutive days. A drawdown is thus the cumulative loss from the last maximum to the next minimum of the price. As they are constructed from “runs” of the same sign variations drawdowns thus incorporate higher ($`>2`$) order correlations not captured by the distribution of returns. The rationale behind the stretched exponential is that it constitutes the most obvious extension of the very basic hypothesis of a pure exponential. As the definition of “maximum” and “minimum” is not unique except in a strict mathematical sense, a drawdown may be defined in slightly varying ways. The definition used in the present paper is the following. A drawdown is defined as the relative decrease in the price from a local maximum to the next local minimum ignoring relative price increases in between the two of maximum size $`ϵ`$. We will refer to this definition of drawdowns as “$`ϵ`$-drawdowns”, where we refer to $`ϵ`$ as the threshold. In general for stock markets, the largest $`<1\%`$ events did not belong to the same distribution as the bulk parameterised by the stretched exponential and have been referred to as “outliers”. In fig. 2, the drawdown distribution for JGB the period 1992.00-1999.23 is shown. We see that the distribution of drawdowns except for the $`11<5\%`$ largest events is well captured by eq. (2). Here we have used $`ϵ=2\%`$ corresponding to the size of a “normal” fluctuation. This result support the existence of outliers in the Japanese bond market. That $`z>1`$ for JGB further amplifies the suggested existence of outliers in the data due to the downward bend in the distribution this implies. The arrow on the figure indicates the largest drawdown related to the decline ending on 4 Oct. 1995. We see that this drawdown of $`9.5\%`$ has a clear gap of $`1.3\%`$ to the previous and that it furthermore clearly lies of the fitted stretched exponential.

In the light of the analysis presented here, the statement in the Laloux et al. article  re-produced above presents a severely distorted picture of the experiment performed in July/Aug. 1995. Not only is the dating of the experiment incorrect, but also the remark that “only a delicate trading back allowed to avoid losses” is exaggerated considering the actual decline in the price. Indeed, the JGB did not crash according to conventional market crash definitions as predicted at that time. However, according to the non-arbitrary outlier definition advocated by the author and D. Sornette in a number of publications  it was an anomalous event as shown in fig. 2. With respect to the slow unfolding of this $`15\%`$ drop, we note the similarity to the slow stock market crashes of 1962 and 1998 . This is also true for the rather large value of $`\beta `$. Last, we want to stress that in order to compare the use of eq. (1) on e.g., different times series, the “eye-balling analysis” used in  is completely useless due to the bias such a non-objective analysis introduces.