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Simulations of financial markets in a Potts-like model

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  • Tetsuya Takaishi

Abstract

A three-state model based on the Potts model is proposed to simulate financial markets. The three states are assigned to "buy", "sell" and "inactive" states. The model shows the main stylized facts observed in the financial market: fat-tailed distributions of returns and long time correlations in the absolute returns. At low inactivity rate, the model effectively reduces to the two-state model of Bornholdt and shows similar results to the Bornholdt model. As the inactivity increases, we observe the exponential distributions of returns.

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  • Tetsuya Takaishi, 2005. "Simulations of financial markets in a Potts-like model," Papers cond-mat/0503156, arXiv.org.
  • Handle: RePEc:arx:papers:cond-mat/0503156
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    Cited by:

    1. Stefan Bornholdt, 2021. "A q-spin Potts model of markets: Gain-loss asymmetry in stock indices as an emergent phenomenon," Papers 2112.06290, arXiv.org.
    2. Tetsuya Takaishi, 2014. "Analysis of Spin Financial Market by GARCH Model," Papers 1409.0118, arXiv.org.
    3. 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).
    4. Tetsuya Takaishi, 2008. "Financial Time Series Analysis of SV Model by Hybrid Monte Carlo," Papers 0807.4394, arXiv.org.
    5. Tetsuya Takaishi, 2009. "An Adaptive Markov Chain Monte Carlo Method for GARCH Model," Papers 0901.0992, arXiv.org.
    6. Tetsuya Takaishi, 2016. "Dynamical cross-correlation of multiple time series Ising model," Evolutionary and Institutional Economics Review, Springer, vol. 13(2), pages 455-468, December.
    7. Bornholdt, Stefan, 2022. "A q-spin Potts model of markets: Gain–loss asymmetry in stock indices as an emergent phenomenon," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 588(C).

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