Arbitrage-free Self-organizing Markets with GARCH Properties: Generating them in the Lab with a Lattice Model
We extend our studies of a quantum field model defined on a lattice having the dilation group as a local gauge symmetry. The model is relevant in the cross-disciplinary area of econophysics. A corresponding proposal by Ilinski aimed at gauge modeling in non-equilibrium pricing is realized as a numerical simulation of the one-asset version. The gauge field background enforces minimal arbitrage, yet allows for statistical fluctuations. The new feature added to the model is an updating prescription for the simulation that drives the model market into a self-organized critical state. Taking advantage of some flexibility of the updating prescription, stylized features and dynamical behaviors of real-world markets are reproduced in some detail.
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.:
- Asger Lunde & Peter R. Hansen, 2005.
"A forecast comparison of volatility models: does anything beat a GARCH(1,1)?,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 20(7), pages 873-889.
- Asger Lunde & Peter Reinhard Hansen, 2001. "A Forecast Comparison of Volatility Models: Does Anything Beat a GARCH(1,1)?," Working Papers 2001-04, Brown University, Department of Economics.
- Lux, T. & M. Marchesi, "undated". "Scaling and Criticality in a Stochastic Multi-Agent Model of a Financial Market," Discussion Paper Serie B 438, University of Bonn, Germany, revised Jul 1998.
- Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
- Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Kirill Ilinski, 1997. "Physics of Finance," Papers hep-th/9710148, arXiv.org.
- Benoit Mandelbrot, 2015. "The Variation of Certain Speculative Prices," World Scientific Book Chapters,in: THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 3, pages 39-78 World Scientific Publishing Co. Pte. Ltd..
When requesting a correction, please mention this item's handle: RePEc:arx:papers:1112.2379. 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.