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Multi-Agent Market Modeling Of Foreign Exchange Rates

Author

Listed:
  • GEORG ZIMMERMANN

    (SIEMENS AG, Corporate Technology, Munich, Germany)

  • RALPH NEUNEIER

    (SIEMENS AG, Corporate Technology, Munich, Germany)

  • RALPH GROTHMANN

    (Department of Finance, University of Bremen, Bremen, Germany)

Abstract

A market mechanism is basically driven by a superposition of decisions of many agents optimizing their profit. The macroeconomic price dynamic is a consequence of the cumulated excess demand/supply created on this micro level. The behavior analysis of a small number of agents is well understood through the game theory. In case of a large number of agents one may use the limiting case that an individual agent does not have an influence on the market, which allows the aggregation of agents by statistic methods. In contrast to this restriction, we can omit the assumption of an atomic market structure, if we model the market through a multi-agent approach.The contribution of the mathematical theory of neural networks to the market price formation is mostly seen on the econometric side: neural networks allow the fitting of high dimensional nonlinear dynamic models. Furthermore, in our opinion, there is a close relationship between economics and the modeling ability of neural networks because a neuron can be interpreted as a simple model of decision making. With this in mind, a neural network models the interaction of many decisions and, hence, can be interpreted as the price formation mechanism of a market.

Suggested Citation

  • Georg Zimmermann & Ralph Neuneier & Ralph Grothmann, 2001. "Multi-Agent Market Modeling Of Foreign Exchange Rates," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 4(01), pages 29-43.
    • Handle: RePEc:wsi:acsxxx:v:04:y:2001:i:01:n:s021952590100005x
    DOI: 10.1142/S021952590100005X
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    Cited by:

    1. Hokky Situngkir & Yohanes Surya, 2004. "Agent-based Model Construction In Financial Economic System," Finance 0405006, University Library of Munich, Germany.
    2. Geyser, Mariëtte & Cutts, Michela, 2007. "PR - Food Security: When To Buy Derivative Instruments," 16th Congress, Cork, Ireland, July 15-20, 2007 345377, International Farm Management Association.

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