Interacting gaps model, dynamics of order book, and stock-market fluctuations

Andrej Svorenčík and F. Slanina ()

The European Physical Journal B: Condensed Matter and Complex Systems, 2007, vol. 57, issue 4, 453-462

Abstract: Inspired by order-book models of financial fluctuations, we investigate the Interacting gaps model, which is the schematic one-dimensional system mimicking the order-book dynamics. We find by simulations the power-law tail in return distribution, power-law decay of volatility autocorrelation with exponent 0.5 and Hurst exponent close to 1/2. Surprisingly, when we make a mean-field approximation, i.e. replace the one-dimensional system by effectively infinite-dimensional one, we obtain analytically the return exponent 5/2, in perfect accord with one-dimensional simulations. Copyright EDP Sciences/Società Italiana di Fisica/Springer-Verlag 2007

Keywords: 89.65.-s Social and economic systems; 05.40.-a Fluctuation phenomena; random processes; noise; and Brownian motion; 02.50.-r Probability theory; stochastic processes; and statistics (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (2)

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DOI: 10.1140/epjb/e2007-00185-4

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