On a Model of a Currency Exchange Rate – Local Stability and Periodic Solutions

A delay differential equation is presented which models how the behavior of traders influences the short time price movements of an asset. Sensitivity to price changes is measured by a parameter a. There is a single equilibrium solution, which is non-hyperbolic for all a>0. We prove that for a< 1 the equilibrium is asymptotically stable, and that for a>1 a 2-dimensional global center-unstable manifold connects the equilibrium to a periodic orbit. Its birth at a=1 is not of Hopf type and seems part of a Takens–Bogdanov scenario.