Frequency analysis of tick quotes on the foreign exchange market and agent-based modeling: A spectral distance approach

Authored by Aki-Hiro Sato

Date Published: 2007-08-01

DOI: 10.1016/j.physa.2007.03.043

Sponsors: Japanese Ministry of Education, Culture, Sports, Science and Technology

Platforms: No platforms listed

Model Documentation: Other Narrative Flow charts Mathematical description

Model Code URLs: Model code not found

Abstract

High-frequency financial data of the foreign exchange market (EUR/CHF, EUR/GBP, EUR/JPY, EUR/NOK, EUR/ SEK, EUR/USD, NZD/USD, USD/CAD, USD/CHF, USD/JPY, USD/NOK, and USD/SEK) are analyzed by utilizing the Kullback-Leibier divergence between two normalized spectrograms of the tick frequency and the generalized Jensen-Shannon divergence among them. The temporal structure variations of the similarity between currency pairs is detected and characterized. A simple agent-based model in which N market participants exchange M currency pairs is proposed. The equation for the tick frequency is approximately derived theoretically. Based on the analysis of this model, the spectral distance of the tick frequency is associated with the similarity of the behavior (perception and decision) of the market participants in exchanging these currency pairs. (C) 2007 Elsevier B.V. All rights reserved.

Tags

Agent-based modeling spectral distance the foreign exchange market tick frequency