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A Simple Model Of Price Formation

Author

Listed:
  • K. SZNAJD-WERON

    () (Institute of Theoretical Physics, University of Wrocław, pl. Maxa Borna 9, 50-204 Wrocław, Poland)

  • R. WERON

    () (Hugo Steinhaus Center, Wrocław University of Technology, Wyspianskiego 27, 50-370 Wrocław, Poland)

Abstract

A simple Ising spin model, which can describe the mechanism of price formation in financial markets is proposed. In contrast to other agent-based models, the influence does not flow inward from the surrounding neighbors to the center site, but spreads outward from the center to the neighbors. The model thus describes the spread of opinions among traders. It is shown via standard Monte Carlo simulations that very simple rules lead to dynamics that duplicate those of asset prices.

Suggested Citation

  • K. Sznajd-Weron & R. Weron, 2002. "A Simple Model Of Price Formation," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 13(01), pages 115-123.
  • Handle: RePEc:wsi:ijmpcx:v:13:y:2002:i:01:n:s0129183102003000
    DOI: 10.1142/S0129183102003000
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    Cited by:

    1. repec:wsi:acsxxx:v:21:y:2018:i:06n07:n:s0219525918500224 is not listed on IDEAS
    2. Kei Katahira & Yu Chen & Gaku Hashimoto & Hiroshi Okuda, 2019. "Development of an agent-based speculation game for higher reproducibility of financial stylized facts," Papers 1902.02040, arXiv.org.
    3. repec:eee:phsmap:v:524:y:2019:i:c:p:503-518 is not listed on IDEAS
    4. Tetsuya Takaishi, 2014. "Analysis of Spin Financial Market by GARCH Model," Papers 1409.0118, arXiv.org.
    5. Mine Caglar, 2011. "Stock Price Processes with Infinite Source Poisson Agents," Papers 1106.6300, arXiv.org.
    6. Kei Katahira & Yu Chen, 2019. "Heterogeneous wealth distribution, round-trip trading and the emergence of volatility clustering in Speculation Game," Papers 1909.03185, arXiv.org.
    7. repec:wsi:acsxxx:v:17:y:2014:i:01:n:s0219525914500040 is not listed on IDEAS
    8. Tetsuya Takaishi, 2009. "An Adaptive Markov Chain Monte Carlo Method for GARCH Model," Papers 0901.0992, arXiv.org.
    9. Piotr Przybyła & Katarzyna Sznajd-Weron & Rafał Weron, 2014. "Diffusion Of Innovation Within An Agent-Based Model: Spinsons, Independence And Advertising," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 17(01), pages 1-22.
    10. Tetsuya Takaishi, 2008. "Financial Time Series Analysis of SV Model by Hybrid Monte Carlo," Papers 0807.4394, arXiv.org.
    11. Frederik Meudt & Thilo A. Schmitt & Rudi Schafer & Thomas Guhr, 2015. "Equilibrium Pricing in an Order Book Environment: Case Study for a Spin Model," Papers 1502.01125, arXiv.org.
    12. Fang, Wen & Wang, Jun, 2013. "Fluctuation behaviors of financial time series by a stochastic Ising system on a Sierpinski carpet lattice," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(18), pages 4055-4063.

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