Reinterpretation of Sieczka-Ho{\l}yst financial market model

TL;DR

This paper reinterprets the Sieczka-Ho{ extl{}yst} model to better reflect real markets by incorporating crafty agents and opinion-driven price changes, resulting in more realistic return distributions with fat tails.

Contribution

The authors provide a novel reinterpretation of the SH model, introducing agent behavior and opinion-based price response to improve market realism.

Findings

Return distributions exhibit power-law or fat tails across different time scales.

Numerical simulations demonstrate the model's ability to produce realistic market dynamics.

Reinterpretation addresses previous paradoxes in the original SH model.

Abstract

In this work we essentially reinterpreted the Sieczka-Ho{\l}yst (SH) model to make it more suited for description of real markets. For instance, this reinterpretation made it possible to consider agents as crafty. These agents encourage their neighbors to buy some stocks if agents have an opportunity to sell these stocks. Also, agents encourage them to sell some stocks if agents have an opposite opportunity. Furthermore, in our interpretation price changes respond only to the agents' opinions change. This kind of respond protects the stock market dynamics against the paradox (present in the SH model), where all agents e.g. buy stocks while the corresponding prices remain unchanged. In this work we found circumstances, where distributions of returns (obtained for quite different time scales) either obey power-law or have at least fat tails. We obtained these distributions from numerical simulations performed in the frame of our approach.