On Simple Mean-Field Stochastic Model of Market Dynamics
Statistical Mechanics
2008-12-02 v1 Trading and Market Microstructure
Abstract
We propose a simple stochastic model of market behavior. Dividing market participants into two groups: trend-followers and fundamentalists, we derive the general form of a stochastic equation of market dynamics. The model has two characteristic time scales: the time of changes of market environment and the characteristic time of news flow. Price behavior in the most general case is driven by three stochastic processes, attributed to trend-followers, fundamentalists, and news flow, respectively. The model demonstrates the wide range of peculiarities which are typical in real markets: multiscale behavior, clustered volatility, weak correlations between the price changes on successive trading days, etc.
Cite
@article{arxiv.cond-mat/0307170,
title = {On Simple Mean-Field Stochastic Model of Market Dynamics},
author = {Guennadi Saiko},
journal= {arXiv preprint arXiv:cond-mat/0307170},
year = {2008}
}
Comments
LaTeX, 5 pages with 2 figures