A simple model of price formation

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.

Version 2: 4 pages, 4 figures; added more stringent statistical analysis; to appear in Int. J. Modern Physics C, Vol. 13, No. 1 (2002)

References in corpus (3)

• Opinion evolution in closed community
• Expectation bubbles in a spin model of markets: Intermittency from frustration across scales
• Energy price risk management

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