MONTE CARLO SIMULATION OF VOLATILITY CLUSTERING IN MARKET MODEL WITH HERDING

Dietrich Stauffer (), Paulo M. C. de Oliveira and Americo T. Bernardes
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Dietrich Stauffer: Laboratoire PMMH, ESPCI, 10 rue Vauquelin, F-75231 Paris Cedex 05, France
Paulo M. C. de Oliveira: Laboratoire PMMH, ESPCI, 10 rue Vauquelin, F-75231 Paris Cedex 05, France
Americo T. Bernardes: Laboratoire PMMH, ESPCI, 10 rue Vauquelin, F-75231 Paris Cedex 05, France

International Journal of Theoretical and Applied Finance (IJTAF), 1999, vol. 02, issue 01, 83-94

Abstract: Through slow changes in the position of the traders, we introduce correlations between the volatility (root mean square change) of the prices at different times. We find this volatility correlation to decay slowly with time, as also observed in reality, and quite independent of the dimensionality of the lattice. We also make the trading activity of a cluster of traders proportional to the cluster size.

Date: 1999
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DOI: 10.1142/S0219024999000066

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