Modeling and simulation of a double auction artificial financial market |
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Institution: | 1. Université del Piemonte Orientale, Dipartimento de Scienze e Tecnologie Avanzate, Via Bellini 25 G, 15100 Alessandria AL, Italy;1. Wireless Networks Laboratory (WNL), Department of Computer Engineering, Iran University of Science and Technology, Tehran, Iran;2. Next-generation and Wireless Communications Laboratory (NWCL), Department of Electrical and Electronics Engineering, Koc University, Istanbul, Turkey;1. Department of Environmental Policy Analysis, Institute for Environmental Studies, VU University Amsterdam, Amsterdam, The Netherlands;2. Department of Innovation Studies, Copernicus Institute of Sustainable Development, Utrecht University, Utrecht, The Netherlands;1. Department of Industrial Engineering and Management, College of Engineering, University of Sharjah, P. O. Box 27272, Sharjah, United Arab Emirates;2. Department of Mechanical Engineering, Indian Institute of Technology Delhi, New Delhi 110016, India;3. Opus College of Business, University of St. Thomas, Mail # TMH 443, 1000 LaSalle Avenue, Minneapolis, MN 55403-2005, USA |
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Abstract: | We present a double-auction artificial financial market populated by heterogeneous agents who trade one risky asset in exchange for cash. Agents issue random orders subject to budget constraints. The limit prices of orders may depend on past market volatility. Limit orders are stored in the book whereas market orders give immediate birth to transactions. We show that fat tails and volatility clustering are recovered by means of very simple assumptions. We also investigate two important stylized facts of the limit order book, i.e., the distribution of waiting times between two consecutive transactions and the instantaneous price impact function. We show both theoretically and through simulations that if the order waiting times are exponentially distributed, even trading waiting times are also exponentially distributed. |
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