Modeling stock price dynamics by continuum percolation system and relevant complex systems analysis

Di Xiao and Jun Wang

Physica A: Statistical Mechanics and its Applications, 2012, vol. 391, issue 20, 4827-4838

Abstract: The continuum percolation system is developed to model a random stock price process in this work. Recent empirical research has demonstrated various statistical features of stock price changes, the financial model aiming at understanding price fluctuations needs to define a mechanism for the formation of the price, in an attempt to reproduce and explain this set of empirical facts. The continuum percolation model is usually referred to as a random coverage process or a Boolean model, the local interaction or influence among traders is constructed by the continuum percolation, and a cluster of continuum percolation is applied to define the cluster of traders sharing the same opinion about the market. We investigate and analyze the statistical behaviors of normalized returns of the price model by some analysis methods, including power-law tail distribution analysis, chaotic behavior analysis and Zipf analysis. Moreover, we consider the daily returns of Shanghai Stock Exchange Composite Index from January 1997 to July 2011, and the comparisons of return behaviors between the actual data and the simulation data are exhibited.

Keywords: Stock price model; Continuum percolation; Statistical analysis; Tail distribution; Lyapunov exponent; Zipf analysis; Computer simulation (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:391:y:2012:i:20:p:4827-4838

DOI: 10.1016/j.physa.2012.05.024

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