Self-organized model of cascade spreading

Gualdi, S. ; Medo, M. ; Zhang, Y.-C

In: The European Physical Journal B, 2011, vol. 79, no. 1, p. 91-98

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    Summary
    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 aminimal 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 apower-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