Heterogeneous beliefs and and routes to complez dynamics in asset pricing models with price contingent contracts

William Brock and Cars Hommes

No 01-05, CeNDEF Working Papers from Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance

Abstract: This paper discusses dynamic evolutionary multi-agent systems, as introduced by Brock and Hommes (1997). In particular the heterogeneous agent dynamic asset pricing model of Brock and Hommes (1998) is extended by introducing derivative securities by means of price contingent contracts. Numerical simulations suggest that in a boundedly rational heterogeneous evolutionary world futures markets may be destabilizing.

Date: 2001
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