Related papers: Derivation of ARCH(1) process from market price ch…
We propose an artificial market model based on deterministic agents. The agents modify their ask/bid price depending on past price changes. The temporal development of market price fluctuations is calculated numerically. A probability…
We introduce a deterministic dealer model which implements most of the empirical laws, such as fat tails in the price change distributions, long term memory of volatility and non-Poissonian intervals. We also clarify the causality between…
The aim of this paper is to propose a heterogeneous agent model of stock markets that develop complicated endogenous price fluctuations. We find occurrences of non-stationary chaos, or speculative bubble, are caused by the heterogeneity of…
Agent-based models provide a constructive approach to studying emergent dynamics in life-like systems composed of interacting, adaptive agents. Financial markets serve as a canonical example of such systems, where collective price dynamics…
A microeconomic approach is proposed to derive the fluctuations of risky asset price, where the market participants are modeled as prospect trading agents. As asset price is generated by the temporary equilibrium between demand and supply,…
We describe a new model to simulate the dynamic interactions between market price and the decisions of two different kind of traders. They possess spatial mobility allowing to group together to form coalitions. Each coalition follows a…
In retrospect, the experimental findings on competitive market behavior called for a revival of the old, classical, view of competition as a collective higgling and bargaining process (as opposed to price-taking behaviors) founded on…
We show that the quotient of Levy processes of jump-diffusion type has a fat-tailed distribution. An application is to price theory in economics. We show that fat tails arise endogenously from modeling of price change based on an excess…
We describe a simple model for speculative trading based on adaptive behavior of economic agents.The adaptive behavior is expressed through a feedback mechanism for changing agents' stock-to-bond ratios, depending on the past performance of…
We show, by studying in detail the market prices of options on liquid markets, that the market has empirically corrected the simple, but inadequate Black-Scholes formula to account for two important statistical features of asset…
The influence of the past price behaviour on the realized volatility is investigated in the present article. The results show that trending (drifting) prices lead to increased (decreased) realized volatility. This ``volatility induced by…
Building on a prominent agent-based model, we present a new structural stochastic volatility asset pricing model of fundamentalists vs. chartists where the prices are determined based on excess demand. Specifically, this allows for…
While the investors' responses to price changes and their price forecasts are well accepted major factors contributing to large price fluctuations in financial markets, our study shows that investors' heterogeneous and dynamic risk aversion…
We introduce a stochastic heterogeneous interacting-agent model for the short-time non-equilibrium evolution of excess demand and price in a stylized asset market. We consider a combination of social interaction within peer groups and…
We apply the potential force estimation method to artificial time series of market price produced by a deterministic dealer model. We find that dealers' feedback of linear prediction of market price based on the latest mean price changes…
The distribution of returns in financial time series exhibits heavy tails. In empirical studies, it has been found that gaps between the orders in the order book lead to large price shifts and thereby to these heavy tails. We set up an…
Prediction markets mobilize financial incentives to forecast binary event outcomes through the aggregation of dispersed beliefs and heterogeneous information. Their growing popularity and demonstrated predictive accuracy in political…
In a financial market, for agents with long investment horizons or at times of severe market stress, it is often changes in the asset price that act as the trigger for transactions or shifts in investment position. This suggests the use of…
In the present work we introduce a novel multi-agent model with the aim to reproduce the dynamics of a double auction market at microscopic time scale through a faithful simulation of the matching mechanics in the limit order book. The…
We describe a bottom-up framework, based on the identification of appropriate order parameters and determination of phase diagrams, for understanding progressively refined agent-based models and simulations of financial markets. We…