Subscribe to the gold package and get unlimited access to Shamra Academy
Register a new userNeed, Greed and Noise: Competing Strategies in a Trading Model
121
0
0.0
(
0
)
Ask ChatGPT about the research
No Arabic abstract
We study an economic model where agents trade a variety of products by using one of three competing rules: need, greed and noise. We find that the optimal strategy for any agent depends on both product composition in the overall market and composition of strategies in the market. In particular, a strategy that does best on pairwise competition may easily do much worse when all are present, leading, in some cases, to a paper, stone, scissors circular hierarchy.
rate research
Read More
Using a data set which includes all transactions among banks in the Italian money market, we study their trading strategies and the dependence among them. We use the Fourier method to compute the variance-covariance matrix of trading strategies. Our results indicate that well defined patterns arise. Two main communities of banks, which can be coarsely identified as small and large banks, emerge.
We use standard physics techniques to model trading and price formation in a market under the assumption that order arrival and cancellations are Poisson random processes. This model makes testable predictions for the most basic properties of a market, such as the diffusion rate of prices, which is the standard measure of financial risk, and the spread and price impact functions, which are the main determinants of transaction cost. Guided by dimensional analysis, simulation, and mean field theory, we find scaling relations in terms of order flow rates. We show that even under completely random order flow the need to store supply and demand to facilitate trading induces anomalous diffusion and temporal structure in prices.
The dynamics of a stock market with heterogeneous agents is discussed in the framework of a recently proposed spin model for the emergence of bubbles and crashes. We relate the log returns of stock prices to magnetization in the model and find that it is closely related to trading volume as observed in real markets. The cumulative distribution of log returns exhibits scaling with exponents steeper than 2 and scaling is observed in the distribution of transition times between bull and bear markets.
In this study, we investigate the statistical properties of the returns and the trading volume. We show a typical example of power-law distributions of the return and of the trading volume. Next, we propose an interacting agent model of stock markets inspired from statistical mechanics [24] to explore the empirical findings. We show that as the interaction among the interacting traders strengthens both the returns and the trading volume present power-law behavior.
Trading frictions are stochastic. They are, moreover, in many instances fast-mean reverting. Here, we study how to optimally trade in a market with stochastic price impact and study approximations to the resulting optimal control problem using singular perturbation methods. We prove, by constructing sub- and super-solutions, that the approximations are accurate to the specified order. Finally, we perform some numerical experiments to illustrate the effect that stochastic trading frictions have on optimal trading.
Log in to be able to interact and post comments
comments
Fetching comments
Sign in to be able to follow your search criteria
