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A simple model of price formation

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  • K. Sznajd-Weron
  • R. Weron

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, 2000. "A simple model of price formation," Papers cond-mat/0101001, arXiv.org, revised Nov 2001.
  • Handle: RePEc:arx:papers:cond-mat/0101001
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    1. repec:wsi:acsxxx:v:17:y:2014:i:01:n:s0219525914500040 is not listed on IDEAS
    2. Tetsuya Takaishi, 2009. "An Adaptive Markov Chain Monte Carlo Method for GARCH Model," Papers 0901.0992, arXiv.org.
    3. 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.
    4. 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.
    5. Tetsuya Takaishi, 2014. "Analysis of Spin Financial Market by GARCH Model," Papers 1409.0118, arXiv.org.
    6. 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.
    7. Tetsuya Takaishi, 2008. "Financial Time Series Analysis of SV Model by Hybrid Monte Carlo," Papers 0807.4394, arXiv.org.
    8. Mine Caglar, 2011. "Stock Price Processes with Infinite Source Poisson Agents," Papers 1106.6300, arXiv.org.

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