On Simple Mean-Field Stochastic Model of Market Dynamics

Guennadi Saiko

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arXiv · cond-mat/0307170

On Simple Mean-Field Stochastic Model of Market Dynamics

Guennadi Saiko

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Abstract

We propose a simple stochastic model of market behavior. Dividing market participants into two groups: trend-followers and fundamentalists, we derive the general form of a stochastic equation of market dynamics. The model has two characteristic time scales: the time of changes of market environment and the characteristic time of news flow. Price behavior in the most general case is driven by three stochastic processes, attributed to trend-followers, fundamentalists, and news flow, respectively. The model demonstrates the wide range of peculiarities which are typical in real markets: multiscale behavior, clustered volatility, weak correlations between the price changes on successive trading days, etc.

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Guennadi Saiko. 2003-07-08. On Simple Mean-Field Stochastic Model of Market Dynamics. https://arxiv.org/abs/cond-mat/0307170

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