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Self-organized model of cascade spreading

Listed author(s):
  • Stanislao Gualdi
  • Matus Medo
  • Yi-Cheng Zhang
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    We 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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    Paper provided by in its series Papers with number 1003.3114.

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    Date of creation: Mar 2010
    Date of revision: Nov 2010
    Publication status: Published in EPJ B 79, 91-98 (2011)
    Handle: RePEc:arx:papers:1003.3114
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