A calibration procedure for analyzing stock price dynamics in an agent-based framework

Maria Recchioni, Gabriele Tedeschi and Mauro Gallegati

No 26, FinMaP-Working Papers from Collaborative EU Project FinMaP - Financial Distortions and Macroeconomic Performance: Expectations, Constraints and Interaction of Agents

Abstract: In this paper we introduce a calibration procedure for validating of agent based models. Starting from the well-known financial model of Brock and Hommes 1998, we show how an appropriate calibration enables the model to describe price time series. We formulate the calibration problem as a nonlinear constrained optimization that can be solved numerically via a gradient-based method. The calibration results show that the simplest version of the Brock and Hommes model, with two trader types, fundamentalists and trend-followers, replicates nicely the price series of four different markets indices: the S&P 500, the Euro Stoxx 50, the Nikkei 225 and the CSI 300. We show how the parameter values of the calibrated model are important in interpret- ing the trader behavior in the different markets investigated. These parameters are then used for price forecasting. To further improve the forecasting, we modify our calibration approach by increasing the trader information set. Finally, we show how this new approach improves the model's ability to predict market prices.

Keywords: Calibration; Validation; Forecasting; Agent-based models; Asset pricing; Heterogeneous beliefs (search for similar items in EconPapers)
JEL-codes: C53 C63 G17 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cmp and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/106211/1/815420455.pdf (application/pdf)

Related works:
Journal Article: A calibration procedure for analyzing stock price dynamics in an agent-based framework (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:fmpwps:26

Access Statistics for this paper

More papers in FinMaP-Working Papers from Collaborative EU Project FinMaP - Financial Distortions and Macroeconomic Performance: Expectations, Constraints and Interaction of Agents Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().