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On Simple Mean-Field Stochastic Model of Market Dynamics

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  • Guennadi Saiko

Abstract

We propose a simple stochastic model of market behavior. Dividing market participants into two groups: trend-followers and fundamentalists, we derive the general form of a stochastic equation of market dynamics. The model has two characteristic time scales: the time of changes of market environment and the characteristic time of news flow. Price behavior in the most general case is driven by three stochastic processes, attributed to trend-followers, fundamentalists, and news flow, respectively. The model demonstrates the wide range of peculiarities which are typical in real markets: multiscale behavior, clustered volatility, weak correlations between the price changes on successive trading days, etc.

Suggested Citation

  • Guennadi Saiko, 2003. "On Simple Mean-Field Stochastic Model of Market Dynamics," Papers cond-mat/0307170, arXiv.org.
  • Handle: RePEc:arx:papers:cond-mat/0307170
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