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

Dupoyet, B, Fiebig, HR, Musgrove, DP. (2011). Replicating financial market dynamics with a simple self-organized critical lattice model . PHYSICA A-STATISTICAL MECHANICS AND ITS APPLICATIONS, 390(18-19), 3120-3135. 10.1016/j.physa.2011.04.017

cited authors

  • Dupoyet, B; Fiebig, HR; Musgrove, DP

authors

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. © 2011 Elsevier B.V. All rights reserved.

publication date

  • September 15, 2011

published in

Digital Object Identifier (DOI)

start page

  • 3120

end page

  • 3135

volume

  • 390

issue

  • 18-19