The minimal model of financial complexity

DOI10.1080/14697681003709447MaRDI QIDQ2866368zbMATH OpenOpenAlexFDO

Authors Philip Z. Maymin

Publication date 13 December 2013

Published in Quantitative Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/0901.3812

zbMATH Keywords

agent based modellingartificial economybehavioural financecellular automatachaos theorycomplexity in financedynamic modelsdynamical systems

Mathematics Subject Classification ID

Economic dynamics (91B55) Stochastic models in economics (91B70) Economic time series analysis (91B84)

Abstract: A representative investor generates realistic and complex security price paths by following this trading strategy: if, a few ticks ago, the market asset had two consecutive upticks or two consecutive downticks, then sell, and otherwise buy. This simple, unique, and robust model is the smallest possible deterministic model of financial complexity, and its generalization leads to complex variety. Compared to a random walk, the minimal model generates time series with fatter tails and more frequent crashes, thus more closely matching the real world. It does all this without any parameter fitting.

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Cites work

• Self-organizing Ising model of financial markets

Cited in

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• scientific article; zbMATH DE number 1642354 (Why is no real title available?)

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