Properties of the wealth process in a market microstructure model

Details Properties of the wealth process in a market microstructure model Properties of the wealth process in a market microstructure model

2005-02-07

arxiv.org/abs/math/0502105v2

Mathematics

Probability

12 pages, 6 figures

Scientific paper

In this short paper we define the wealth process in a spin model for market microstructure, for individual agents and in aggregate. The agents in our model try to balance their desire to belong to the local majority (herding behavior), defined over random network neighborhoods, and the occasional advantage of belonging to the global minority (contrarian trading). We arrive at a classification of the martingale properties of this wealth process and use it to determine the strategic stability of the agents' interactions. Our goal is to add a behavioral interpretation to this stochastic agent-based model for market fluctuations.

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