1,721,344 research outputs found
A simulation analysis of the microstructure of double auction markets
No full textWe introduce an order-driven market model with heterogeneous agents trading via a central order matching mechanism. Traders set bids and asks and post market or limit orders according to exogenously fixed rules. We investigate how different trading strategies may affect the dynamics of price, bid–ask spreads, trading volume and volatility. We also analyse how some features of market design, such as tick size and order lifetime, affect market liquidity. The model is able to reproduce many of the complex phenomena observed in real stock markets. © 2002 IOP Publishing Ltd
The Impact of Heterogeneous Trading Rules on the Limit Order Book and Order Flows
Full text linkIn this paper we develop a model of an order-driven market where traders set bids and asks and post market or limit orders according to exogenously fixed rules. Agents are assumed to have three components to the expectation of future asset returns, namely-fundamentalist, chartist and noise trader. Furthermore agents differ in the characteristics describing these components, such as time horizon, risk aversion and the weights given to the various components. The model developed here extends a great deal of earlier literature in that the order submissions of agents are determined by utility maximisation, rather than the mechanical unit order size that is commonly assumed. In this way the order flow is better related to the ongoing evolution of the market. For the given market structure we analyze the impact of the three components of the trading strategies on the statistical properties of prices and order flows and observe that it is the chartist strategy that is mainly responsible of the fat tails and clustering in the artificial price data generated by the model. The paper provides further evidence that large price changes are likely to be generated by the presence of large gaps in the book
Correction: Exchange Option under Jump-diffusion Dynamics
No full textIn this note, we provide the correct formula for the price of the European exchange option given in Cheang, G. H. L., & Chiarella, C. (2011. Exchange options under jump-diffusion dynamics. Applied Mathematical Finance, 18, 245–276) in a bi-dimensional jump diffusion model
The long run outcomes and global dynamics of a duopoly game with misspecified demand functions
No full textIn this paper we study a model of a quantity-setting duopoly market where firms lack knowledge of the market demand. Using a misspecified demand function firms determine their profit-maximizing choices of their corresponding perceived market game. For illustrative purposes we assume that the (true) demand function is linear and that the reaction functions of the players are quadratic. We then investigate the global dynamics of this game and characterize the number of steady states and their welfare properties. We study the basins of attraction of these steady states and present situations in which global bifurcations of their basins occur when model parameters are varied. The economic significance of our result is to show that in situations where players choose their actions based on a misspecified model of the environment, additional self-confirming steady states may emerge, despite the fact that the Nash-equilibrium of the game under perfect knowledge is unique. As a consequence the long run outcome of the game and overall welfare is highly dependent upon initial conditions
A stability analysis of the perfect foresight map in nonlinear models of monetary dynamics
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Speculative behaviour and complex asset price dynamics: A global analysis
No full textThis paper analyses the dynamics of a model of a share market consisting of two groups of traders: fundamentalists, who base their trading decisions on the expectation of a return to the fundamental value of the asset, and chartists, who base their trading decisions on an analysis of past price trends. The model is reduced to a two-dimensional map whose global dynamic behaviour is analysed in detail. The dynamics are affected by parameters measuring the strength of fundamentalist demand and the speed with which chartists adjust their estimate of the trend to past price changes. The parameter space is characterized according to the local stability/instability of the equilibrium point as well as the non-invertibility of the map. The method of critical curves of non-invertible maps is used to understand and describe the range of global bifurcations that can occur. It is also shown how the knowledge of deterministic dynamics uncovered here can aid in understanding the behaviour of stochastic versions of the model. © 2002 Elsevier Science B.V. All rights reserved
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