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The role of driving parameters of the three-state Ising model on the stability of the reconstruction of financial market phenomena

Jan A. Lipski ,  Ryszard Kutner 

Warsaw University, Faculty of Physics, Hoża 69, Warszawa 00-681, Poland


The three-state G. Iori model of heteroagents placed in sites of a planar square lattice in the version has been modified. We model the increase of herding behaviour by simulating the altering trust of an agent to neighbour one: the trust increases if the price change has been foreseen by the neighbour correctly and decreases - if foreseen incorrectly. The agents base their decisions on looking at both their neighbours' advice and the fundamental price of the asset. The fundamental behaviour switches on periodically. The model reconstructs the following real market phenomena (stylized facts): volatility clustering, fat tail log return distribution and the power law decay of the volatility (absolute value of log returns) autocorrelation function over time. The latter corresponds to the real market empirical data supplied with high accuracy.


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Related papers

Presentation: Poster at 6 Ogólnopolskie Sympozjum "Fizyka w Ekonomii i Naukach Społecznych", by Jan A. Lipski
See On-line Journal of 6 Ogólnopolskie Sympozjum "Fizyka w Ekonomii i Naukach Społecznych"

Submitted: 2012-01-14 09:03
Revised:   2012-01-18 22:28