Minimal Agent Based Model for Financial Markets I: Origin and Self-Organization of Stylized Facts

Details Minimal Agent Based Model for Financial Markets I: Origin and Self-Organization of Stylized Facts Minimal Agent Based Model for Financial Markets I: Origin and Self-Organization of Stylized Facts

2008-08-26

arxiv.org/abs/0808.3562v1

Economy

Quantitative Finance

Trading and Market Microstructure

Scientific paper

10.1140/epjb/e2009-00028-4

We introduce a minimal Agent Based Model for financial markets to understand the nature and Self-Organization of the Stylized Facts. The model is minimal in the sense that we try to identify the essential ingredients to reproduce the main most important deviations of price time series from a Random Walk behavior. We focus on four essential ingredients: fundamentalist agents which tend to stabilize the market; chartist agents which induce destabilization; analysis of price behavior for the two strategies; herding behavior which governs the possibility of changing strategy. Bubbles and crashes correspond to situations dominated by chartists, while fundamentalists provide a long time stability (on average). The Stylized Facts are shown to correspond to an intermittent behavior which occurs only for a finite value of the number of agents N. Therefore they correspond to finite size effect which, however, can occur at different time scales. We propose a new mechanism for the Self-Organization of this state which is linked to the existence of a threshold for the agents to be active or not active. The feedback between price fluctuations and number of active agents represent a crucial element for this state of Self-Organized-Intermittency. The model can be easily generalized to consider more realistic variants.

Affiliated with

Also associated with

No associations

Rating

Minimal Agent Based Model for Financial Markets I: Origin and Self-Organization of Stylized Facts does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Minimal Agent Based Model for Financial Markets I: Origin and Self-Organization of Stylized Facts, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Minimal Agent Based Model for Financial Markets I: Origin and Self-Organization of Stylized Facts will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-282069