A multilayer approach for price dynamics in financial markets

TL;DR

This paper presents a multilayer SOC model simulating financial market price dynamics, capturing realistic features like fat tails and order book behavior across two assets with variable fundamentals.

Contribution

It introduces a novel multilayer SOC model that realistically incorporates order book dynamics and multiple assets, advancing the simulation of financial market behavior.

Findings

Fat tails observed in return distributions

Order book dynamics are realistically modeled

Features align with real market data

Abstract

We introduce a new Self-Organized Criticality (SOC) model for simulating price evolution in an artificial financial market, based on a multilayer network of traders. The model also implements, in a quite realistic way with respect to previous studies, the order book dy- namics, by considering two assets with variable fundamental prices. Fat tails in the probability distributions of normalized returns are observed, together with other features of real financial markets.