Arbitrage-Free Self-Organizing Markets with GARCH Properties: Generating Them in the Lab with a Lattice Model

Physica A 391 (2012), Pages 4350-4363

14 Pages Posted: 18 Apr 2019

See all articles by Brice V. Dupoyet

Brice V. Dupoyet

Florida International University - College of Business Administration - Finance

Rudolf H Fiebig

Florida International University (FIU) - Department of Physics

David Musgrove

American Real Estate Society - Florida International University

Date Written: April 25, 2012

Abstract

We extend our studies of a quantum field model defined on a lattice having the dilation group as a local gauge symmetry. The model is relevant in the cross-disciplinary area of econophysics. A corresponding proposal by Ilinski aimed at gauge modeling in nonequilibrium pricing is realized as a numerical simulation of the one-asset version. The gauge field background enforces minimal arbitrage, yet allows for statistical fluctuations. The new feature added to the model is an updating prescription for the simulation that drives the model market into a self-organized critical state. Taking advantage of some flexibility of the updating prescription, stylized features and dynamical behaviors of real-world markets are reproduced in some detail.

Keywords: Econophysics, Financial Markets, Statistical Field Theory, Self-Organized Criticality

JEL Classification: G10

Suggested Citation

Dupoyet, Brice and Fiebig, Rudolf H and Musgrove, David, Arbitrage-Free Self-Organizing Markets with GARCH Properties: Generating Them in the Lab with a Lattice Model (April 25, 2012). Physica A 391 (2012), Pages 4350-4363. Available at SSRN: https://ssrn.com/abstract=3357166

Brice Dupoyet (Contact Author)

Florida International University - College of Business Administration - Finance ( email )

University Park, RB 209 A
11200 SW 8th Street
Miami, FL 33199
United States
305-348-3328 (Phone)
305-348-4245 (Fax)

Rudolf H Fiebig

Florida International University (FIU) - Department of Physics ( email )

FL
United States

David Musgrove

American Real Estate Society - Florida International University ( email )

1101 Brickell Ave Ste 1100S
Miami, FL 33131-3113
United States

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