The working of circuit breakers within percolation models for financial markets

Autor(en): Ehrenstein, G
Westerhoff, F
Stichwörter: Computer Science; Computer Science, Interdisciplinary Applications; econophysics; financial markets; percolation models; Physics; Physics, Mathematical; trading breaks
Erscheinungsdatum: 2006
Herausgeber: WORLD SCIENTIFIC PUBL CO PTE LTD
Journal: INTERNATIONAL JOURNAL OF MODERN PHYSICS C
Volumen: 17
Ausgabe: 2
Startseite: 299
Seitenende: 304
Zusammenfassung: 
We use a modified Cont-Bouchaud model to explore the effectiveness of trading breaks. The modifications include that the trading activity of the market participants depends positively on historical volatility and that the orders of the agents are conditioned on the observed mispricing. Trading breaks, also called circuit breakers, interrupt the trading process when prices are about to exceed a pre-specified limit. We find that trading breaks are a useful instrument to stabilize financial markets. In particular, trading breaks may reduce price volatility and deviations from fundamentals.
ISSN: 01291831
DOI: 10.1142/S0129183106009035

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