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News and price returns from threshold behaviour and vice-versa: exact solution of a simple agent-based market model

Damien Challet
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Abstract

Starting from an exact relationship between news, threshold and price return distributions in the stationary state, I discuss the ability of the Ghoulmie-Cont-Nadal model of traders to produce fat-tailed price returns. Under normal conditions, this model is not able to transform Gaussian news into fat-tailed price returns. When the variance of the news so small that only the players with zero threshold can possibly react to news, this model produces Levy-distributed price returns with a -1 exponent. In the special case of super-linear price impact functions, fat-tailed returns are obtained from well-behaved news.

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Damien Challet. 2006-10-18. News and price returns from threshold behaviour and vice-versa: exact solution of a simple agent-based market model. https://doi.org/10.1088/0305-4470/39/48/001

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