Stock Market Simulation: Heavy Tails through Normal Perturbation

The aim of this paper is to present a simple simulation model which can generate price paths with heavy tails returns. The model consists of two agents represented by two excess demand functions and a normal stochastic perturbation. Depending of the value of the parameters, the model can generate a wide range of simulations, from a pure stochastic with normal distribution to a heavy tail process. The main achievement is the simplicity of the functional form and the parameter setting as to change simulations. In that sense it can be used as a complement to Monte Carlo simulation.