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Agent-based simulation of a financial market

Marco Raberto (), Silvano Cincotti (), Sergio M. Focardi and Michele Marchesi

Physica A: Statistical Mechanics and its Applications, 2001, vol. 299, issue 1, 319-327

Abstract: This paper introduces an agent-based artificial financial market in which heterogeneous agents trade one single asset through a realistic trading mechanism for price formation. Agents are initially endowed with a finite amount of cash and a given finite portfolio of assets. There is no money-creation process; the total available cash is conserved in time. In each period, agents make random buy and sell decisions that are constrained by available resources, subject to clustering, and dependent on the volatility of previous periods. The model proposed herein is able to reproduce the leptokurtic shape of the probability density of log price returns and the clustering of volatility. Implemented using extreme programming and object-oriented technology, the simulator is a flexible computational experimental facility that can find applications in both academic and industrial research projects.

Keywords: Artificial financial markets; Heterogeneous agents; Financial time series; Econophysics (search for similar items in EconPapers)
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:299:y:2001:i:1:p:319-327

DOI: 10.1016/S0378-4371(01)00312-0

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