Minimal agent based model for financial markets I |
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Authors: | V Alfi M Cristelli L Pietronero and A Zaccaria |
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Institution: | (1) Università “La Sapienza”, P.le A. Moro 2, 00185 Roma, Italy;(2) Centro “E. Fermi”, Compendio Viminale, 00184 Roma, Italy;(3) ISC-CNR, V. dei Taurini 19, 00185 Roma, Italy |
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Abstract: | We introduce a minimal agent based model for financial markets to understand the nature and self-organization of the stylized
facts. The model is minimal in the sense that we try to identify the essential ingredients to reproduce the most important
deviations of price time series from a random walk behavior. We focus on four essential ingredients: fundamentalist agents
which tend to stabilize the market; chartist agents which induce destabilization; analysis of price behavior for the two strategies;
herding behavior which governs the possibility of changing strategy. Bubbles and crashes correspond to situations dominated
by chartists, while fundamentalists provide a long time stability (on average). The stylized facts are shown to correspond
to an intermittent behavior which occurs only for a finite value of the number of agents N. Therefore they correspond to finite
size effects which, however, can occur at different time scales. We propose a new mechanism for the self-organization of this
state which is linked to the existence of a threshold for the agents to be active or not active. The feedback between price
fluctuations and number of active agents represents a crucial element for this state of self-organized intermittency. The
model can be easily generalized to consider more realistic variants. |
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Keywords: | PACS" target="_blank">PACS 89 65 Gh Economics econophysics financial markets business and management 89 75 -k Complex systems |
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