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Modelling financial markets by the multiplicative sequence of trades

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  • Vygintas Gontis
  • Bronislovas Kaulakys

Abstract

We introduce the stochastic multiplicative point process modelling trading activity of financial markets. Such a model system exhibits power-law spectral density S(f) ~ 1/f**beta, scaled as power of frequency for various values of beta between 0.5 and 2. Furthermore, we analyze the relation between the power-law autocorrelations and the origin of the power-law probability distribution of the trading activity. The model reproduces the spectral properties of trading activity and explains the mechanism of power-law distribution in real markets.

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  • Vygintas Gontis & Bronislovas Kaulakys, 2004. "Modelling financial markets by the multiplicative sequence of trades," Papers cond-mat/0412723, arXiv.org.
    • Handle: RePEc:arx:papers:cond-mat/0412723
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    1. Gontis, V. & Kononovicius, A., 2017. "Burst and inter-burst duration statistics as empirical test of long-range memory in the financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 483(C), pages 266-272.
    2. V. Gontis & A. Kononovicius, 2017. "Burst and inter-burst duration statistics as empirical test of long-range memory in the financial markets," Papers 1701.01255, arXiv.org.

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