Modelling Financial Markets by Self-Organized Criticality
We present a financial market model, characterized by self-organized criticality, that is able to generate endogenously a realistic price dynamics and to reproduce well-known stylized facts. We consider a community of heterogeneous traders, composed by chartists and fundamentalists, and focus on the...
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Published in | arXiv.org |
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Main Authors | , , |
Format | Paper Journal Article |
Language | English |
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Cornell University Library, arXiv.org
08.10.2015
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Abstract | We present a financial market model, characterized by self-organized criticality, that is able to generate endogenously a realistic price dynamics and to reproduce well-known stylized facts. We consider a community of heterogeneous traders, composed by chartists and fundamentalists, and focus on the role of informative pressure on market participants, showing how the spreading of information, based on a realistic imitative behavior, drives contagion and causes market fragility. In this model imitation is not intended as a change in the agent's group of origin, but is referred only to the price formation process. We introduce in the community also a variable number of random traders in order to study their possible beneficial role in stabilizing the market, as found in other studies. Finally we also suggest some counterintuitive policy strategies able to dampen fluctuations by means of a partial reduction of information. |
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AbstractList | We present a financial market model, characterized by self-organized criticality, that is able to generate endogenously a realistic price dynamics and to reproduce well-known stylized facts. We consider a community of heterogeneous traders, composed by chartists and fundamentalists, and focus on the role of informative pressure on market participants, showing how the spreading of information, based on a realistic imitative behavior, drives contagion and causes market fragility. In this model imitation is not intended as a change in the agent's group of origin, but is referred only to the price formation process. We introduce in the community also a variable number of random traders in order to study their possible beneficial role in stabilizing the market, as found in other studies. Finally we also suggest some counterintuitive policy strategies able to dampen fluctuations by means of a partial reduction of information. Phys. Rev. E 92, 042814 (2015) We present a financial market model, characterized by self-organized criticality, that is able to generate endogenously a realistic price dynamics and to reproduce well-known stylized facts. We consider a community of heterogeneous traders, composed by chartists and fundamentalists, and focus on the role of informative pressure on market participants, showing how the spreading of information, based on a realistic imitative behavior, drives contagion and causes market fragility. In this model imitation is not intended as a change in the agent's group of origin, but is referred only to the price formation process. We introduce in the community also a variable number of random traders in order to study their possible beneficial role in stabilizing the market, as found in other studies. Finally we also suggest some counterintuitive policy strategies able to dampen fluctuations by means of a partial reduction of information. |
Author | Pluchino, A Biondo, A E Rapisarda, A |
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BackLink | https://doi.org/10.1103/PhysRevE.92.042814$$DView published paper (Access to full text may be restricted) https://doi.org/10.48550/arXiv.1507.04298$$DView paper in arXiv |
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Copyright | 2015. This work is published under http://arxiv.org/licenses/nonexclusive-distrib/1.0/ (the “License”). Notwithstanding the ProQuest Terms and Conditions, you may use this content in accordance with the terms of the License. http://arxiv.org/licenses/nonexclusive-distrib/1.0 |
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Snippet | We present a financial market model, characterized by self-organized criticality, that is able to generate endogenously a realistic price dynamics and to... Phys. Rev. E 92, 042814 (2015) We present a financial market model, characterized by self-organized criticality, that is able to generate endogenously a... |
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SubjectTerms | Communities Economic models Fragility Information dissemination Markets Physics - Physics and Society Quantitative Finance - Statistical Finance Variations |
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Title | Modelling Financial Markets by Self-Organized Criticality |
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