Simulation of financial market via nonlinear Ising model

Bonggyun Ko, Jae Wook Song and Woojin Chang
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Bonggyun Ko: Department of Industrial Engineering, Seoul National University, Seoul 151-742, Republic of Korea
Jae Wook Song: Department of Industrial Engineering, Seoul National University, Seoul 151-742, Republic of Korea
Woojin Chang: Department of Industrial Engineering, Seoul National University, Seoul 151-742, Republic of Korea

International Journal of Modern Physics C (IJMPC), 2016, vol. 27, issue 04, 1-15

Abstract: In this research, we propose a practical method for simulating the financial return series whose distribution has a specific heaviness. We employ the Ising model for generating financial return series to be analogous to those of the real series. The similarity between real financial return series and simulated one is statistically verified based on their stylized facts including the power law behavior of tail distribution. We also suggest the scheme for setting the parameters in order to simulate the financial return series with specific tail behavior. The simulation method introduced in this paper is expected to be applied to the other financial products whose price return distribution is fat-tailed.

Keywords: Nonlinear Ising model; financial return; stock indices; CDS spread; fat-tail (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (6)

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DOI: 10.1142/S0129183116500388

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