A generalized spin model of financial markets
arXiv:cond-mat/9810162 · doi:10.1007/s100510050714
Abstract
We reformulate the Cont-Bouchaud model of financial markets in terms of classical "super-spins" where the spin value is a measure of the number of individual traders represented by a portfolio manager of an investment agency. We then extend this simplified model by switching on interactions among the super-spins to model the tendency of agencies getting influenced by the opinion of other managers. We also introduce a fictitious temperature (to model other random influences), and time-dependent local fields to model slowly changing optimistic or pessimistic bias of traders. We point out close similarities between the price variations in our model with super-spins and total displacements in an -step Levy flight. We demonstrate the phenomena of natural and artificially created bubbles and subsequent crashes as well as the occurrence of "fat tails" in the distributions of stock price variations.
11 pages LATEX, 7 postscript figures; longer text with theoretical analysis, more accurate numerical data, better terminology, additional references. Accepted for publication in European Physical Journal B
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