Order Book, Financial Markets and Self-Organized Criticality

2016/02/26 by Alessio Emanuele Biondo, Alessandro Pluchino, Biondo, Alessio Emanuele +3
Economics, Econometrics and Finance · Physics and Astronomy · #FOS: Economics and business #FOS: Physical sciences #Physics and Society (physics.soc-ph) #Trading and Market Microstructure (q-fin.TR) #physics.soc-ph #q-fin.TR

paper · pdf · doi:10.48550/arxiv.1602.08270

18 pages, 10 figures

arxiv created 2016/02/26 · arxiv updated 2016/02/29

Abstract

We present a simple order book mechanism that regulates an artificial financial market with self-organized criticality dynamics and fat tails of returns distribution. The model shows the role played by individual imitation in determining trading decisions, while fruitfully replicates typical aggregate market behavior as the "self-fulfilling prophecy". We also address the role of random traders as a possible decentralized solution to dampen market fluctuations.

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