Three-state herding model of the financial markets

Authored by Aleksejus Kononovicius, V. Gontis

Date Published: 2013-01

DOI: 10.1209/0295-5075/101/28001

Sponsors: No sponsors listed

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

We propose a Markov jump process with the three-state herding interaction. We see our approach as an agent-based model for the financial markets. Under certain assumptions this agent-based model can be related to the stochastic description exhibiting sophisticated statistical features. Along with power-law probability density function of the absolute returns we are able to reproduce the fractured power spectral density, which is observed in the high-frequency financial market data. The given example of consistent agent-based and stochastic modeling will provide a background for further developments in the research of complex social systems. Copyright (C) EPLA, 2013

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