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Explaining Agent-Based Financial Market Simulation

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  • David Byrd

Abstract

This paper is intended to explain, in simple terms, some of the mechanisms and agents common to multiagent financial market simulations. We first discuss the necessity to include an exogenous price time series ("the fundamental value") for each asset and three methods for generating that series. We then illustrate one process by which a Bayesian agent may receive limited observations of the fundamental series and estimate its current and future values. Finally, we present two such agents widely examined in the literature, the Zero Intelligence agent and the Heuristic Belief Learning agent, which implement different approaches to order placement.

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  • David Byrd, 2019. "Explaining Agent-Based Financial Market Simulation," Papers 1909.11650, arXiv.org.
  • Handle: RePEc:arx:papers:1909.11650
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    References listed on IDEAS

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    1. Gjerstad, Steven & Dickhaut, John, 1998. "Price Formation in Double Auctions," Games and Economic Behavior, Elsevier, vol. 22(1), pages 1-29, January.
    2. Gode, Dhananjay K & Sunder, Shyam, 1993. "Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 119-137, February.
    3. Tucker Hybinette Balch & Mahmoud Mahfouz & Joshua Lockhart & Maria Hybinette & David Byrd, 2019. "How to Evaluate Trading Strategies: Single Agent Market Replay or Multiple Agent Interactive Simulation?," Papers 1906.12010, arXiv.org.
    4. Gjerstad, Steven, 2007. "The competitive market paradox," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1753-1780, May.
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    Cited by:

    1. Svitlana Vyetrenko & David Byrd & Nick Petosa & Mahmoud Mahfouz & Danial Dervovic & Manuela Veloso & Tucker Hybinette Balch, 2019. "Get Real: Realism Metrics for Robust Limit Order Book Market Simulations," Papers 1912.04941, arXiv.org.
    2. Zijian Shi & John Cartlidge, 2023. "Neural Stochastic Agent-Based Limit Order Book Simulation: A Hybrid Methodology," Papers 2303.00080, arXiv.org.
    3. David Byrd & Sruthi Palaparthi & Maria Hybinette & Tucker Hybinette Balch, 2020. "The Importance of Low Latency to Order Book Imbalance Trading Strategies," Papers 2006.08682, arXiv.org.
    4. Yuanlu Bai & Henry Lam & Svitlana Vyetrenko & Tucker Balch, 2021. "Efficient Calibration of Multi-Agent Simulation Models from Output Series with Bayesian Optimization," Papers 2112.03874, arXiv.org, revised Sep 2022.
    5. Andrea Coletta & Matteo Prata & Michele Conti & Emanuele Mercanti & Novella Bartolini & Aymeric Moulin & Svitlana Vyetrenko & Tucker Balch, 2021. "Towards Realistic Market Simulations: a Generative Adversarial Networks Approach," Papers 2110.13287, arXiv.org.
    6. Srijan Sood & Zhen Zeng & Naftali Cohen & Tucker Balch & Manuela Veloso, 2020. "Visual Time Series Forecasting: An Image-driven Approach," Papers 2011.09052, arXiv.org, revised Nov 2021.

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