We explore a simple lattice field model intended to describe statistical properties of high-frequency financial markets. The model is relevant in the cross-disciplinary area of econophysics. Its signature feature is the emergence of a self-organized critical state. This implies scale invariance of the model, without tuning parameters. Prominent results of our simulation are time series of gains, prices, volatility, and gains frequency distributions, which all compare favorably to features of historical market data. Applying a standard GARCH(1,1) fit to the lattice model gives results that are almost indistinguishable from historical NASDAQ data.
Physica A Statistical Mechanics and its Applications
- Pub Date:
- September 2011
- Quantitative Finance - Computational Finance;
- Nonlinear Sciences - Adaptation and Self-Organizing Systems
- 20 pages, 33 figures