26 research outputs found
Breakdown of the mean-field approximation in a wealth distribution model
One of the key socioeconomic phenomena to explain is the distribution of
wealth. Bouchaud and M\'ezard have proposed an interesting model of economy
[Bouchaud and M\'ezard (2000)] based on trade and investments of agents. In the
mean-field approximation, the model produces a stationary wealth distribution
with a power-law tail. In this paper we examine characteristic time scales of
the model and show that for any finite number of agents, the validity of the
mean-field result is time-limited and the model in fact has no stationary
wealth distribution. Further analysis suggests that for heterogeneous agents,
the limitations are even stronger. We conclude with general implications of the
presented results.Comment: 11 pages, 3 figure
Turnover, account value and diversification of real traders: evidence of collective portfolio optimizing behavior
Despite the availability of very detailed data on financial market,
agent-based modeling is hindered by the lack of information about real trader
behavior. This makes it impossible to validate agent-based models, which are
thus reverse-engineering attempts. This work is a contribution to the building
of a set of stylized facts about the traders themselves. Using the client
database of Swissquote Bank SA, the largest on-line Swiss broker, we find
empirical relationships between turnover, account values and the number of
assets in which a trader is invested. A theory based on simple mean-variance
portfolio optimization that crucially includes variable transaction costs is
able to reproduce faithfully the observed behaviors. We finally argue that our
results bring into light the collective ability of a population to construct a
mean-variance portfolio that takes into account the structure of transaction
costsComment: 26 pages, 9 figures, Fig. 8 fixe
Schumpeterian economic dynamics as a quantifiable minimum model of evolution
We propose a simple quantitative model of Schumpeterian economic dynamics.
New goods and services are endogenously produced through combinations of
existing goods. As soon as new goods enter the market they may compete against
already existing goods, in other words new products can have destructive
effects on existing goods. As a result of this competition mechanism existing
goods may be driven out from the market - often causing cascades of secondary
defects (Schumpeterian gales of destruction). The model leads to a generic
dynamics characterized by phases of relative economic stability followed by
phases of massive restructuring of markets - which could be interpreted as
Schumpeterian business `cycles'. Model timeseries of product diversity and
productivity reproduce several stylized facts of economics timeseries on long
timescales such as GDP or business failures, including non-Gaussian fat tailed
distributions, volatility clustering etc. The model is phrased in an open,
non-equilibrium setup which can be understood as a self organized critical
system. Its diversity dynamics can be understood by the time-varying topology
of the active production networks.Comment: 21 pages, 11 figure
High frequency trading strategies, market fragility and price spikes: an agent based model perspective
Given recent requirements for ensuring the robustness of algorithmic trading strategies laid out in the Markets in Financial Instruments Directive II, this paper proposes a novel agent-based simulation for exploring algorithmic trading strategies. Five different types of agents are present in the market. The statistical properties of the simulated market are compared with equity market depth data from the Chi-X exchange and found to be significantly similar. The model is able to reproduce a number of stylised market properties including: clustered volatility, autocorrelation of returns, long memory in order flow, concave price impact and the presence of extreme price events. The results are found to be insensitive to reasonable parameter variations
Risk trading, network topology and banking regulation
In the context of understanding the nature of the risk transformation process of the financial system we propose an iterative risk-trading game between several agents who build their trading strategies based on a general utility setting. The game is studied numerically for different network topologies. Consequences of topology are shown for the wealth time-series of agents, for the safety and efficiency of various types of network. The proposed set-up allows an analysis of the effects of different approaches to banking regulation as currently suggested by the Basle Committee of Banking Supervision. We find a phase-transition-like phenomenon, where the Basle parameter plays the role of temperature and system safety serves as the order parameter. This result suggests the existence of an optimal regulation parameter. As a consequence, a tightening of the current regulatory framework does not necessarily lead to an improvement of the safety of the banking system. Moreover, we show that banking systems with local risk-sharing cooperations have higher global default rates than systems with low cyclicality.