Trading model with pair pattern strategies

F. Ren and Y.C. Zhang

Physica A: Statistical Mechanics and its Applications, 2008, vol. 387, issue 22, 5523-5534

Abstract: A simple trading model based on pair pattern strategy space with holding periods is proposed. Power-law behavior is observed for the return variance σ2, the price impact H and the predictability K for both models, with linear and square root impact functions. The sum of the traders’ wealth displays a positive value for the model with a square root price impact function, and a qualitative explanation is given based on the observation of the conditional excess demand 〈A|u〉. The cumulative wealth distribution also obeys a power-law behavior with an exponent close to that of real markets. An evolutionary trading model is further proposed. The elimination mechanism effectively changes the behavior of traders, and a power-law behavior is observed in the measure of zero return distribution P(r=0). The trading model with other types of traders, e.g., traders with the MG’s strategies and producers, are also carefully studied.

Keywords: Agent-based modeling; Minority Game; Price impact; Power-law behavior (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:387:y:2008:i:22:p:5523-5534

DOI: 10.1016/j.physa.2008.06.027

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