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Monte Carlo Simulation Of Volatility Clustering In Market Model With Herding

Author

Listed:
  • DIETRICH STAUFFER

    (Laboratoire PMMH, ESPCI, 10 rue Vauquelin, F-75231 Paris Cedex 05, France)

  • PAULO M. C. DE OLIVEIRA

    (Laboratoire PMMH, ESPCI, 10 rue Vauquelin, F-75231 Paris Cedex 05, France)

  • AMERICO T. BERNARDES

    (Laboratoire PMMH, ESPCI, 10 rue Vauquelin, F-75231 Paris Cedex 05, France)

Abstract

Through slow changes in the position of the traders, we introduce correlations between the volatility (root mean square change) of the prices at different times. We find this volatility correlation to decay slowly with time, as also observed in reality, and quite independent of the dimensionality of the lattice. We also make the trading activity of a cluster of traders proportional to the cluster size.

Suggested Citation

  • Dietrich Stauffer & Paulo M. C. De Oliveira & Americo T. Bernardes, 1999. "Monte Carlo Simulation Of Volatility Clustering In Market Model With Herding," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 2(01), pages 83-94.
    • Handle: RePEc:wsi:ijtafx:v:02:y:1999:i:01:n:s0219024999000066
    DOI: 10.1142/S0219024999000066
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    Citations

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    Cited by:

    1. Iori, Giulia, 2002. "A microsimulation of traders activity in the stock market: the role of heterogeneity, agents' interactions and trade frictions," Journal of Economic Behavior & Organization, Elsevier, vol. 49(2), pages 269-285, October.
    2. Lux, Thomas & Alfarano, Simone, 2016. "Financial power laws: Empirical evidence, models, and mechanisms," Chaos, Solitons & Fractals, Elsevier, vol. 88(C), pages 3-18.
    3. Troy Tassier, 2013. "Handbook of Research on Complexity, by J. Barkley Rosser, Jr. and Edward Elgar," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 39(1), pages 132-133.
    4. Thomas Lux, 2009. "Applications of Statistical Physics in Finance and Economics," Chapters, in: J. Barkley Rosser Jr. (ed.), Handbook of Research on Complexity, chapter 9, Edward Elgar Publishing.
    5. Lux, Thomas, 2008. "Applications of statistical physics in finance and economics," Kiel Working Papers 1425, Kiel Institute for the World Economy (IfW Kiel).
    6. Noemi Schmitt & Frank Westerhoff, 2017. "Herding behaviour and volatility clustering in financial markets," Quantitative Finance, Taylor & Francis Journals, vol. 17(8), pages 1187-1203, August.
    7. Blaurock, Ivonne & Schmitt, Noemi & Westerhoff, Frank, 2018. "Market entry waves and volatility outbursts in stock markets," Journal of Economic Behavior & Organization, Elsevier, vol. 153(C), pages 19-37.
    8. Lux, Thomas, 2008. "Stochastic behavioral asset pricing models and the stylized facts," Kiel Working Papers 1426, Kiel Institute for the World Economy (IfW Kiel).
    9. Antonio Doria, Francisco, 2011. "J.B. Rosser Jr. , Handbook of Research on Complexity, Edward Elgar, Cheltenham, UK--Northampton, MA, USA (2009) 436 + viii pp., index, ISBN 978 1 84542 089 5 (cased)," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1-2), pages 196-204, April.

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