Heterogeneity and feedback in an agent-based market model

Authored by F Ghoulmie, R Cont, JP Nadal

Date Published: 2005-04-13

DOI: 10.1088/0953-8984/17/14/015

Sponsors: No sponsors listed

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

We propose an agent-based model of a single-asset financial market, described in terms of a small number of parameters, which generates price returns with statistical properties similar to the stylized facts observed in financial time series. Our agent-based model generically leads to the absence of autocorrelation in returns, self-sustaining excess volatility, mean-reverting volatility, volatility clustering and endogenous bursts of market activity nonattributable to external noise. The parsimonious structure of the model allows the identification of feedback and heterogeneity as the key mechanisms leading to these effects.

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