Self-organized model of cascade spreading |
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Authors: | S. Gualdi M. Medo Y.-C. Zhang |
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Affiliation: | (1) School of Computing Science, Simon Fraser University, Burnaby, British Columbia, Canada |
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Abstract: | We study simultaneous price drops of real stocks and show that for high drop thresholds they follow a power-law distribution. To reproduce these collective downturns, we propose a minimal self-organized model of cascade spreading based on a probabilistic response of the system elements to stress conditions. This model is solvable using the theory of branching processes and the mean-field approximation. For a wide range of parameters, the system is in a critical state and displays a power-law cascade-size distribution similar to the empirically observed one. We further generalize the model to reproduce volatility clustering and other observed properties of real stocks. |
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