Advanced Search
MyIDEAS: Login to save this paper or follow this series

A queueing theory description of fat-tailed price returns in imperfect financial markets

Contents:

Author Info

  • H. Lamba
Registered author(s):

    Abstract

    In a financial market, for agents with long investment horizons or at times of severe market stress, it is often changes in the asset price that act as the trigger for transactions or shifts in investment position. This suggests the use of price thresholds to simulate agent behavior over much longer timescales than are currently used in models of order-books. We show that many phenomena, routinely ignored in efficient market theory, can be systematically introduced into an otherwise efficient market, resulting in models that robustly replicate the most important stylized facts. We then demonstrate a close link between such threshold models and queueing theory, with large price changes corresponding to the busy periods of a single-server queue. The distribution of the busy periods is known to have excess kurtosis and non-exponential decay under various assumptions on the queue parameters. Such an approach may prove useful in the development of mathematical models for rapid deleveraging and panics in financial markets, and the stress-testing of financial institutions.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://arxiv.org/pdf/0908.0949
    File Function: Latest version
    Download Restriction: no

    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 0908.0949.

    as in new window
    Length:
    Date of creation: Aug 2009
    Date of revision: Aug 2010
    Handle: RePEc:arx:papers:0908.0949

    Contact details of provider:
    Web page: http://arxiv.org/

    Related research

    Keywords:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Alfarano, Simone & Lux, Thomas & Wagner, Friedrich, 2008. "Time variation of higher moments in a financial market with heterogeneous agents: An analytical approach," Journal of Economic Dynamics and Control, Elsevier, vol. 32(1), pages 101-136, January.
    2. Alfarano, Simone & Milakovic, Mishael, 2009. "Network structure and N-dependence in agent-based herding models," Journal of Economic Dynamics and Control, Elsevier, vol. 33(1), pages 78-92, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:arx:papers:0908.0949. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.