IDEAS home Printed from https://ideas.repec.org/a/wsi/ijmpcx/v13y2002i01ns0129183102003000.html
   My bibliography  Save this article

A Simple Model Of Price Formation

Author

Listed:
  • K. SZNAJD-WERON

    (Institute of Theoretical Physics, University of Wrocław, pl. Maxa Borna 9, 50-204 Wrocław, Poland)

  • R. WERON

    (Hugo Steinhaus Center, Wrocław University of Technology, Wyspianskiego 27, 50-370 Wrocław, Poland)

Abstract

A simple Ising spin model, which can describe the mechanism of price formation in financial markets is proposed. In contrast to other agent-based models, the influence does not flow inward from the surrounding neighbors to the center site, but spreads outward from the center to the neighbors. The model thus describes the spread of opinions among traders. It is shown via standard Monte Carlo simulations that very simple rules lead to dynamics that duplicate those of asset prices.

Suggested Citation

  • K. Sznajd-Weron & R. Weron, 2002. "A Simple Model Of Price Formation," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 13(01), pages 115-123.
    • Handle: RePEc:wsi:ijmpcx:v:13:y:2002:i:01:n:s0129183102003000
    DOI: 10.1142/S0129183102003000
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S0129183102003000
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S0129183102003000?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mine Caglar, 2011. "Stock Price Processes with Infinite Source Poisson Agents," Papers 1106.6300, arXiv.org.
    2. Kaizoji, Taisei & Bornholdt, Stefan & Fujiwara, Yoshi, 2002. "Dynamics of price and trading volume in a spin model of stock markets with heterogeneous agents," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 316(1), pages 441-452.
    3. Quanbo Zha & Gang Kou & Hengjie Zhang & Haiming Liang & Xia Chen & Cong-Cong Li & Yucheng Dong, 2020. "Opinion dynamics in finance and business: a literature review and research opportunities," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-22, December.
    4. Kei Katahira & Yu Chen, 2019. "Heterogeneous wealth distribution, round-trip trading and the emergence of volatility clustering in Speculation Game," Papers 1909.03185, arXiv.org.
    5. Shang, Lihui & Zhao, Mingming & Ai, Jun & Su, Zhan, 2021. "Opinion evolution in the Sznajd model on interdependent chains," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 565(C).
    6. Meudt, Frederik & Schmitt, Thilo A. & Schäfer, Rudi & Guhr, Thomas, 2016. "Equilibrium pricing in an order book environment: Case study for a spin model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 453(C), pages 228-235.
    7. Piotr Przybyła & Katarzyna Sznajd-Weron & Rafał Weron, 2014. "Diffusion Of Innovation Within An Agent-Based Model: Spinsons, Independence And Advertising," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 17(01), pages 1-22.
    8. Zubillaga, Bernardo J. & Vilela, André L.M. & Wang, Chao & Nelson, Kenric P. & Stanley, H. Eugene, 2022. "A three-state opinion formation model for financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 588(C).
    9. Tetsuya Takaishi, 2009. "An Adaptive Markov Chain Monte Carlo Method for GARCH Model," Papers 0901.0992, arXiv.org.
    10. Mehrdad Agha Mohammad Ali Kermani & Reza Ghesmati & Masoud Jalayer, 2018. "Opinion-Aware Influence Maximization: How To Maximize A Favorite Opinion In A Social Network?," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 21(06n07), pages 1-27, September.
    11. Tetsuya Takaishi, 2008. "Financial Time Series Analysis of SV Model by Hybrid Monte Carlo," Papers 0807.4394, arXiv.org.
    12. Michele Bee & Juan Pablo Gama, 2022. "A process of demand discovery from a smithian perspective," Textos para Discussão Cedeplar-UFMG 647, Cedeplar, Universidade Federal de Minas Gerais.
    13. Frederik Meudt & Thilo A. Schmitt & Rudi Schafer & Thomas Guhr, 2015. "Equilibrium Pricing in an Order Book Environment: Case Study for a Spin Model," Papers 1502.01125, arXiv.org.
    14. Kei Katahira & Yu Chen & Gaku Hashimoto & Hiroshi Okuda, 2019. "Development of an agent-based speculation game for higher reproducibility of financial stylized facts," Papers 1902.02040, arXiv.org.
    15. Ko, Bonggyun & Kim, Kyungwon, 2017. "Simulation of sovereign CDS market based on interaction between market participant," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 479(C), pages 324-340.
    16. Katahira, Kei & Chen, Yu & Hashimoto, Gaku & Okuda, Hiroshi, 2019. "Development of an agent-based speculation game for higher reproducibility of financial stylized facts," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 524(C), pages 503-518.
    17. Fang, Wen & Wang, Jun, 2013. "Fluctuation behaviors of financial time series by a stochastic Ising system on a Sierpinski carpet lattice," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(18), pages 4055-4063.
    18. Antonio Aguilera & Edgardo Ugalde, 2007. "A Spatially Extended Model for Residential Segregation," Discrete Dynamics in Nature and Society, Hindawi, vol. 2007, pages 1-20, April.
    19. Tetsuya Takaishi, 2014. "Analysis of Spin Financial Market by GARCH Model," Papers 1409.0118, arXiv.org.
    20. Fonseca, Carla L.G. & de Resende, Charlene C. & Fernandes, Danilo H.C. & Cardoso, Rodrigo T.N. & de Magalhães, A.R. Bosco, 2021. "Is the choice of the candlestick dimension relevant in econophysics?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 582(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:ijmpcx:v:13:y:2002:i:01:n:s0129183102003000. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/ijmpc/ijmpc.shtml .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.