Self-organized model of cascade spreading
AbstractWe study simultaneous price drops of real stocks and show that for high drop thresholds they follow a power-law distribution. To reproduce these collective downturns, we propose a minimal self-organized model of cascade spreading based on a probabilistic response of the system elements to stress conditions. This model is solvable using the theory of branching processes and the mean-field approximation. For a wide range of parameters, the system is in a critical state and displays a power-law cascade-size distribution similar to the empirically observed one. We further generalize the model to reproduce volatility clustering and other observed properties of real stocks.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1003.3114.
Date of creation: Mar 2010
Date of revision: Nov 2010
Publication status: Published in EPJ B 79, 91-98 (2011)
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-28 (All new papers)
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