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A prognosis oriented microscopic stock market model, Physica A

By Christian Busshaus and Heiko Rieger

Abstract

We present a new microscopic stochastic model for an ensemble of interacting investors that buy and sell stocks in discrete time steps via limit orders based on individual forecasts about the price of the stock. These orders determine the supply and demand fixing after each round (time step) the new price of the stock according to which the limited buy and sell orders are then executed and new forecasts are made. We show via numerical simulation of this model that the distribution of price differences obeys an exponentially truncated Levy-distribution with a self similarity exponent µ ≈ 5

Topics: Stock market models, interacting investors, price fluctuations, truncated Levy distribution. Typeset using REVTEX
Year: 1999
OAI identifier: oai:CiteSeerX.psu:10.1.1.169.262
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