EconPapers    
Economics at your fingertips  
 

An Agent-Based Model of a Pricing Process with Power Law, Volatility Clustering, and Jumps

Yu Shi, Qixuan Luo and Handong Li

Complexity, 2019, vol. 2019, 1-10

Abstract:

In this paper, we propose a new model of security price dynamics in order to explain the stylized facts of the pricing process such as power law distribution, volatility clustering, jumps, and structural changes. We assume that there are two types of agents in the financial market: speculators and fundamental investors. Speculators use past prices to predict future prices and only buy assets whose prices are expected to rise. Fundamental investors attach a certain value to each asset and buy when the asset is undervalued by the market. When the expectations of agents are exogenously driven, that is, entirely shaped by exogenous news, then they can be modeled as following a random walk. We assume that the information related to the two types of agents in the model will arrive randomly with a certain probability distribution and change the viewpoint of the agents according to a certain percentage. Our simulated results show that this model can simulate well the random walk of asset prices and explain the power-law tail distribution of returns, volatility clustering, jumps, and structural changes of asset prices.

Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://downloads.hindawi.com/journals/8503/2019/3429412.pdf (application/pdf)
http://downloads.hindawi.com/journals/8503/2019/3429412.xml (text/xml)

Related works:
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:hin:complx:3429412

DOI: 10.1155/2019/3429412

Access Statistics for this article

More articles in Complexity from Hindawi
Bibliographic data for series maintained by Mohamed Abdelhakeem ().

 
Page updated 2021-01-21
Handle: RePEc:hin:complx:3429412