Three-state herding model of the financial markets

Aleksejus Kononovicius and Vygintas Gontis

Papers from arXiv.org

Abstract: We propose a Markov jump process with the three-state herding interaction. We see our approach as an agent-based model for the financial markets. Under certain assumptions this agent-based model can be related to the stochastic description exhibiting sophisticated statistical features. Along with power-law probability density function of the absolute returns we are able to reproduce the fractured power spectral density, which is observed in the high-frequency financial market data. Given example of consistent agent-based and stochastic modeling will provide background for the further developments in the research of complex social systems.

Date: 2012-10, Revised 2013-01
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Citations: View citations in EconPapers (15)

Published in EPL 101, 28001 (2013)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1210.1838

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