Market simulation with hierarchical information flux

TL;DR

This paper models market prices as diffusing through a hierarchical barrier system, capturing fat-tailed distributions and multifractality, to better understand complex market dynamics.

Contribution

It introduces a hierarchical barrier model for market price diffusion that reproduces realistic fat tails and multifractal properties.

Findings

Reproduces fat-tailed price change distributions with specific exponents.

Demonstrates effective multifractality at intermediate times.

Provides a novel framework linking information importance to market fluctuations.

Abstract

We assume the market price to diffuse in a hierarchical comb of barriers, the heights of which represent the importance of new information entering the market. We find fat tails with the desired exponent for the price change distribution, and effective multifractality for intermediate times.