Modelling financial markets by the multiplicative sequence of trades
Statistical Mechanics
2008-12-02 v1 Computational Engineering, Finance, and Science
Spectral Theory
Data Analysis, Statistics and Probability
Statistical Finance
Abstract
We introduce the stochastic multiplicative point process modelling trading activity of financial markets. Such a model system exhibits power-law spectral density S(f) ~ 1/f**beta, scaled as power of frequency for various values of beta between 0.5 and 2. Furthermore, we analyze the relation between the power-law autocorrelations and the origin of the power-law probability distribution of the trading activity. The model reproduces the spectral properties of trading activity and explains the mechanism of power-law distribution in real markets.
Keywords
Cite
@article{arxiv.cond-mat/0412723,
title = {Modelling financial markets by the multiplicative sequence of trades},
author = {Vygintas Gontis and Bronislovas Kaulakys},
journal= {arXiv preprint arXiv:cond-mat/0412723},
year = {2008}
}
Comments
6 pages, 2 figures