Trading model with pair pattern strategies

Authored by F. Ren, Y. C. Zhang

Date Published: 2008-09-15

DOI: 10.1016/j.physa.2008.06.027

Sponsors: Shanghai Educational Development Foundation

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

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 sigma(2), the price impact H and the preclictability 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. (C) 2008 Elsevier B.V. All rights reserved.

Tags

Agent-based modeling minority game power-law behavior price impact