Modeling and complexity of stochastic interacting Lévy type financial price dynamics

Yiduan Wang, Shenzhou Zheng, Wei Zhang, Jun Wang and Guochao Wang

Physica A: Statistical Mechanics and its Applications, 2018, vol. 499, issue C, 498-511

Abstract: In attempt to reproduce and investigate nonlinear dynamics of security markets, a novel nonlinear random interacting price dynamics, which is considered as a Lévy type process, is developed and investigated by the combination of lattice oriented percolation and Potts dynamics, which concerns with the instinctive random fluctuation and the fluctuation caused by the spread of the investors’ trading attitudes, respectively. To better understand the fluctuation complexity properties of the proposed model, the complexity analyses of random logarithmic price return and corresponding volatility series are preformed, including power-law distribution, Lempel–Ziv complexity and fractional sample entropy. In order to verify the rationality of the proposed model, the corresponding studies of actual security market datasets are also implemented for comparison. The empirical results reveal that this financial price model can reproduce some important complexity features of actual security markets to some extent. The complexity of returns decreases with the increase of parameters γ1 and β respectively, furthermore, the volatility series exhibit lower complexity than the return series

Keywords: Nonlinear fluctuation complexity; Lattice oriented percolation; Potts dynamics; Lévy type process; Lempel–Ziv complexity; Fractional sample entropy (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:499:y:2018:i:c:p:498-511

DOI: 10.1016/j.physa.2018.02.029

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