Work detail

Cusp catastrophe theory: Application to the housing market

Author: Bc. Vojtěch Kořínek
Year: 2019 - summer
Leaders: PhDr. Jiří Kukačka Ph.D.
Work type: Bachelors
Language: English
Pages: 57
Awards and prizes:
Abstract: The bachelor’s thesis applies the stochastic cusp catastrophe model to the
housing market of the United States. Weekly data over the period from 2007
to 2017 are used. The current catastrophe theory literature related to the
housing market is reviewed, the models found are assessed and expanded.
Specifically, we have identified three deficiencies of the catastrophe models
applied to housing market in the current literature and our contribution
lies in the elimination of these deficiencies. In order to satisfy the constant
volatility assumption of the model, the state variable is normalized by the
estimated volatility derived from GARCH. Furthermore, multiple control
variables are added to the model to represent the activity of fundamentalists
and chartists. The results suggest that the cusp catastrophe model fits the
data better than the linear and logistic models. The normalization of the
state variable improves the model performance while the introduction of the
additional control variables does not produce better results.


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