Computational modeling of collective human behavior: Example of financial markets

Details Computational modeling of collective human behavior: Example of financial markets Computational modeling of collective human behavior: Example of financial markets

2008-12-14

arxiv.org/abs/0812.2603v1

Economy

Quantitative Finance

Trading and Market Microstructure

Draft of keynote lecture at International Conference on Computational Science (June, 2008). Final version published in LNCS M.

Scientific paper

We discuss how minimal financial market models can be constructed by bridging the gap between two existing, but incomplete, market models: a model in which a population of virtual traders make decisions based on common global information but lack local information from their social network, and a model in which the traders form a dynamically evolving social network but lack any decision-making based on global information. We show that a suitable combination of these two models -- in particular, a population of virtual traders with access to both global and local information -- produces results for the price return distribution which are closer to the reported stylized facts. We believe that this type of model can be applied across a wide range of systems in which collective human activity is observed.

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