Replicating financial market dynamics with a simple self-organized critical lattice model

B. Dupoyet, H.R. Fiebig and D.P. Musgrove

Physica A: Statistical Mechanics and its Applications, 2011, vol. 390, issue 18, 3120-3135

Abstract: We explore a simple lattice field model intended to describe statistical properties of high-frequency financial markets. The model is relevant in the cross-disciplinary area of econophysics. Its signature feature is the emergence of a self-organized critical state. This implies scale invariance of the model, without tuning parameters. Prominent results of our simulation are time series of gains, prices, volatility, and gains frequency distributions, which all compare favorably to features of historical market data. Applying a standard GARCH(1,1) fit to the lattice model gives results that are almost indistinguishable from historical NASDAQ data.

Keywords: Econophysics; Financial markets; Statistical field theory; Self-organized criticality (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:390:y:2011:i:18:p:3120-3135

DOI: 10.1016/j.physa.2011.04.017

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