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Financial price dynamics and pedestrian counterflows: A comparison of statistical stylized facts

Financial price dynamics and pedestrian counterflows: A comparison of statistical stylized facts | FuturICT Journal Publications | Scoop.it

Financial price dynamics and pedestrian counterflows: A comparison of statistical stylized facts

Daniel R. Parisi, Didier Sornette, and Dirk Helbing

Accepted Friday Dec 14, 2012

We propose and document the evidence for an analogy between the dynamics of granular counter-flows in the presence of bottlenecks or restrictions and financial price formation processes. Using extensive simulations, we find that the counter-flows of simulated pedestrians through a door display eight stylized facts observed in financial markets when the density around the door is compared with the logarithm of the price. Finding so many stylized facts is very rare indeed among all agent-based models of financial markets. The stylized properties are present already when the agents in the pedestrian model are assumed to display a zero-intelligent behavior. If agents are given decision-making capacity and adapt to partially follow the majority, periods of herding behavior may additionally occur. This generates the very slow decay of the autocorrelation of absolute return due to an intermittent dynamics. Our finding suggest that the stylized facts in the fluctuations of the financial prices result from a competition of two groups with opposite interests in the presence of a constraint funneling the flow of transactions to a narrow band of prices with limited liquidity.

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FuturICT: Complexity aided design -A. Carbone, M. Ajmone-Marsan, K. W. Axhausen, M. Batty, M. Masera, E. Rome

FuturICT: Complexity aided design -A. Carbone, M. Ajmone-Marsan, K. W. Axhausen, M. Batty, M. Masera, E. Rome | FuturICT Journal Publications | Scoop.it

A. Carbone, M. Ajmone-Marsan, K. W. Axhausen, M. Batty, M. Masera, E. Rome

“In the next century, planet earth will don an electronic skin. It will use the Internet as a scaffold to support and transmit its sensations. This skin is already being stitched together. It consists of millions of embedded electronic measuring devices: thermostats, pressure gauges, pollution detectors, cameras, microphones, glucose sensors, EKGs, electroencephalographs. These will probe and monitor cities and endangered species, the atmosphere, our ships, highways and fleets of trucks, our conversations, our bodies–even our dreams ....What will the earth’s new skin permit us to feel? How will we use its surges of sensation? For several years–maybe for a decade–there will be no central nervous system to manage this vast signaling network. Certainly there will be no central intelligence...some qualities of self-awareness will emerge once the Net is sensually enhanced. Sensuality is only one force pushing the Net toward intelligence”. These statements are quoted by an interview by Cherry Murray, Dean of the Harvard School of Engineering and Applied Sciences and Professor of Physics. It is interesting to outline the timeliness and highly predicting power of these statements. In particular, we would like to point to the relevance of the question “What will the earth’s new skin permit us to feel?” to the work we are going to discuss in this paper. There are many additional compelling questions, as for example: “How can the electronic earth’s skin be made more resilient?”; “How can the earth’s electronic skin be improved to better satisfy the need of our society?”;“What can the science of complex systems contribute to this endeavour?”

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JOURNAL: THE EUROPEAN PHYSICAL JOURNAL SPECIAL TOPICS Vol. 214 (November II 2012)"Participatory Science and Computing for Our Complex World".

http://epjst.epj.org/index.php?option=com_toc&url=/articles/epjst/abs/2012/14/contents/contents.html

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