Modeling the stock market prior to large crashes

We propose that the minimal requirements for a model of stock market price fluctuations should comprise time asymmetry, robustness with respect to connectivity between agents, “bounded rationality” and a probabilistic description. We also compare extensively two previously proposed models of log-periodic behavior of the stock market index prior to a large crash. We find that the model which follows the above requirements outperforms the other with a high statistical significance. PACS. 01.75.+m Science and society – 02.50.-r Probability theory, stochastic processes, and statistics – 89.90.+n Other areas of general interest to physicists 1 General guidelines for stock market modeling