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A threshold model of financial markets

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  • Pawe{l} Sieczka
  • Janusz A. Ho{l}yst

Abstract

We proposed a model of interacting market agents based on the Ising spin model. The agents can take three actions: "buy," "sell," or "stay inactive." We defined a price evolution in terms of the system magnetization. The model reproduces main stylized facts of real markets such as: fat-tailed distribution of returns and volatility clustering.

Suggested Citation

  • Pawe{l} Sieczka & Janusz A. Ho{l}yst, 2007. "A threshold model of financial markets," Papers 0711.3106, arXiv.org, revised Jun 2008.
    • Handle: RePEc:arx:papers:0711.3106
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    Cited by:

    1. Kristoufek, Ladislav & Vošvrda, Miloslav S., 2016. "Herding, minority game, market clearing and efficient markets in a simple spin model framework," FinMaP-Working Papers 68, Collaborative EU Project FinMaP - Financial Distortions and Macroeconomic Performance: Expectations, Constraints and Interaction of Agents.
    2. Francisco Prieto-Castrillo & Amin Shokri Gazafroudi & Javier Prieto & Juan Manuel Corchado, 2018. "An Ising Spin-Based Model to Explore Efficient Flexibility in Distributed Power Systems," Complexity, Hindawi, vol. 2018, pages 1-16, May.
    3. Jan A. Lipski & Ryszard Kutner, 2013. "Trust in foreseeing neighbours - a novel threshold model of financial market," Papers 1301.1824, arXiv.org.
    4. Bornholdt, Stefan, 2022. "A q-spin Potts model of markets: Gain–loss asymmetry in stock indices as an emergent phenomenon," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 588(C).

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