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Interacting gaps model, dynamics of order book, and stock-market fluctuations

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  • A. Svorenčík
  • F. Slanina

Abstract

Inspired by order-book models of financial fluctuations, we investigate the Interacting gaps model, which is the schematic one-dimensional system mimicking the order-book dynamics. We find by simulations the power-law tail in return distribution, power-law decay of volatility autocorrelation with exponent 0.5 and Hurst exponent close to 1/2. Surprisingly, when we make a mean-field approximation, i.e. replace the one-dimensional system by effectively infinite-dimensional one, we obtain analytically the return exponent 5/2, in perfect accord with one-dimensional simulations. Copyright EDP Sciences/Società Italiana di Fisica/Springer-Verlag 2007

Suggested Citation

  • A. Svorenčík & F. Slanina, 2007. "Interacting gaps model, dynamics of order book, and stock-market fluctuations," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 57(4), pages 453-462, June.
    • Handle: RePEc:spr:eurphb:v:57:y:2007:i:4:p:453-462
    DOI: 10.1140/epjb/e2007-00185-4
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    References listed on IDEAS

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    1. Mantegna,Rosario N. & Stanley,H. Eugene, 2007. "Introduction to Econophysics," Cambridge Books, Cambridge University Press, number 9780521039871, September.
    2. Jean-Philippe Bouchaud, 1998. "Elements for a theory of financial risks," Science & Finance (CFM) working paper archive 500042, Science & Finance, Capital Fund Management.
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    Cited by:

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    2. Wang, Guochao & Zheng, Shenzhou & Wang, Jun, 2019. "Complex and composite entropy fluctuation behaviors of statistical physics interacting financial model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 517(C), pages 97-113.

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