Strategic Agent-Based Modeling of Financial Markets
Understanding the implications of algorithmic trading calls for modeling financial markets at a level of fidelity that often precludes analytic solution. We describe how agent-based simulation modeling can be combined with game-theoretic reasoning to examine the effects of market variables on outcom...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Russell Sage Foundation
2017-01-01
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| Series: | RSF: The Russell Sage Foundation Journal of the Social Sciences |
| Subjects: | |
| Online Access: | http://www.rsfjournal.org/doi/full/10.7758/RSF.2017.3.1.06 |
| _version_ | 1819290905722486784 |
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| author | Michael P. Wellman Elaine Wah |
| author_facet | Michael P. Wellman Elaine Wah |
| author_sort | Michael P. Wellman |
| collection | DOAJ |
| description | Understanding the implications of algorithmic trading calls for modeling financial markets at a level of fidelity that often precludes analytic solution. We describe how agent-based simulation modeling can be combined with game-theoretic reasoning to examine the effects of market variables on outcomes of interest. The approach is illustrated in a basic model where investors trade a single security through a continuous double auction mechanism. Our results demonstrate the feasibility of the approach, and raise questions about the use of spreads as a proxy for trading cost and welfare. |
| first_indexed | 2024-12-24T03:30:10Z |
| format | Article |
| id | doaj.art-42852e4485fa4d58be598cfc7f7b426d |
| institution | Directory Open Access Journal |
| issn | 2377-8253 2377-8261 |
| language | English |
| last_indexed | 2024-12-24T03:30:10Z |
| publishDate | 2017-01-01 |
| publisher | Russell Sage Foundation |
| record_format | Article |
| series | RSF: The Russell Sage Foundation Journal of the Social Sciences |
| spelling | doaj.art-42852e4485fa4d58be598cfc7f7b426d2022-12-21T17:17:13ZengRussell Sage FoundationRSF: The Russell Sage Foundation Journal of the Social Sciences2377-82532377-82612017-01-013110411910.7758/RSF.2017.3.1.06Strategic Agent-Based Modeling of Financial MarketsMichael P. Wellman0Elaine Wah1University of MichiganIEX GroupUnderstanding the implications of algorithmic trading calls for modeling financial markets at a level of fidelity that often precludes analytic solution. We describe how agent-based simulation modeling can be combined with game-theoretic reasoning to examine the effects of market variables on outcomes of interest. The approach is illustrated in a basic model where investors trade a single security through a continuous double auction mechanism. Our results demonstrate the feasibility of the approach, and raise questions about the use of spreads as a proxy for trading cost and welfare.http://www.rsfjournal.org/doi/full/10.7758/RSF.2017.3.1.06algorithmic tradingagent-based modeling |
| spellingShingle | Michael P. Wellman Elaine Wah Strategic Agent-Based Modeling of Financial Markets RSF: The Russell Sage Foundation Journal of the Social Sciences algorithmic trading agent-based modeling |
| title | Strategic Agent-Based Modeling of Financial Markets |
| title_full | Strategic Agent-Based Modeling of Financial Markets |
| title_fullStr | Strategic Agent-Based Modeling of Financial Markets |
| title_full_unstemmed | Strategic Agent-Based Modeling of Financial Markets |
| title_short | Strategic Agent-Based Modeling of Financial Markets |
| title_sort | strategic agent based modeling of financial markets |
| topic | algorithmic trading agent-based modeling |
| url | http://www.rsfjournal.org/doi/full/10.7758/RSF.2017.3.1.06 |
| work_keys_str_mv | AT michaelpwellman strategicagentbasedmodelingoffinancialmarkets AT elainewah strategicagentbasedmodelingoffinancialmarkets |