Trading model with pair pattern strategies
AbstractA simple trading model based on pair pattern strategy space with holding periods is proposed. Power-law behavior is observed for the return variance σ2, the price impact H and the predictability K for both models, with linear and square root impact functions. The sum of the traders’ wealth displays a positive value for the model with a square root price impact function, and a qualitative explanation is given based on the observation of the conditional excess demand 〈A|u〉. The cumulative wealth distribution also obeys a power-law behavior with an exponent close to that of real markets. An evolutionary trading model is further proposed. The elimination mechanism effectively changes the behavior of traders, and a power-law behavior is observed in the measure of zero return distribution P(r=0). The trading model with other types of traders, e.g., traders with the MG’s strategies and producers, are also carefully studied.
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Bibliographic InfoArticle provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.
Volume (Year): 387 (2008)
Issue (Month): 22 ()
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Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/
Agent-based modeling; Minority Game; Price impact; Power-law behavior;
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