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Trading model with pair pattern strategies

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  • Ren, F.
  • Zhang, Y.C.
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    Abstract

    A 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 Info

    Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

    Volume (Year): 387 (2008)
    Issue (Month): 22 ()
    Pages: 5523-5534

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    Handle: RePEc:eee:phsmap:v:387:y:2008:i:22:p:5523-5534

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    Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

    Related research

    Keywords: Agent-based modeling; Minority Game; Price impact; Power-law behavior;

    References

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    Cited by:
    1. Li-Xin Zhong & Wen-Juan Xu & Ping Huang & Chen-Yang Zhong & Tian Qiu, 2013. "Self-organization and phase transition in financial markets with multiple choices," Papers 1312.0690, arXiv.org, revised Jun 2014.
    2. Li-Xin Zhong & Wen-Juan Xu & Fei Ren & Yong-Dong Shi, 2012. "Coupled effects of market impact and asymmetric sensitivity in financial markets," Papers 1209.3399, arXiv.org, revised Jan 2013.
    3. Zhong, Li-Xin & Xu, Wen-Juan & Ren, Fei & Shi, Yong-Dong, 2013. "Coupled effects of market impact and asymmetric sensitivity in financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(9), pages 2139-2149.

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