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The Simulation of Financial Markets by Agent-Based Mix-Game Models

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Abstract

This paper studies the simulation of financial markets using an agent-based mix-game model which is a variant of the minority game (MG). It specifies the spectra of parameters of mix-game models that fit financial markets by investigating the dynamic behaviors of mix-game models under a wide range of parameters. The main findings are (a) in order to approach efficiency, agents in a real financial market must be heterogeneous, boundedly rational and subject to asymmetric information; (b) an active financial market must be dominated by agents who play a minority game; otherwise, the market would die; (c) the system could be stable if agents who play a majority game have a faster learning rate than those who play a minority game; otherwise, the system could be unstable. The paper then induces the rules for simulating financial markets with mix-game models and gives an example. Finally, the appendix of this paper presents background information about 'El Farol bar', MG and mix-games.

Suggested Citation

  • Chengling Gou, 2006. "The Simulation of Financial Markets by Agent-Based Mix-Game Models," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 9(3), pages 1-6.
    • Handle: RePEc:jas:jasssj:2005-84-4
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    Cited by:

    1. Guglielmo Maria Caporale & Antoaneta Serguieva & Hao Wu, 2009. "Financial contagion: evolutionary optimization of a multinational agent‐based model," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 16(1‐2), pages 111-125, January.

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