Financial market model based on self-organized percolation

Abstract

Starting with the self-organized evolution of the trader group's structure, a parsimonious percolation model for stock market is established, which can be considered as a kind of betterment of the Cont-Bouchaud model. The return distribution of the present model obeys Lévy form in the center and displays fat-tail property, in accord with the stylized facts observed in real-life financial time series. Furthermore, this model reveals the power-law relationship between the peak value of the probability distribution and the time scales, in agreement with the empirical studies on the Hang Seng Index.