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On the problem of calibrating an agent based model for financial markets

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  • Annalisa Fabretti

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Abstract

Agent based models are very widely used in different disciplines. In financial markets, they can be used to explain well known features called stylised facts and fit statistical properties of data. For this reason, they can model price movements better than standard models using gaussianity. Calibration and validation are essential issues in agent-based modeling. However, calibrating such models is not yet sufficiently considered in the literature. In this paper, a Nelder–Mead simplex algorithm coupled with threshold accepting algorithm (Gilli and Winker in Comput Stat Data Anal 42:299–312, 2003 ) and a genetic algorithm have been implemented to calibrate the model presented by Farmer and Joshi (J Econ Behav Org 49:149–171, 2002 ) and the outcomes have been compared and discussed. The data used are closing prices of S&P500 Composite index and a particular attention has been devoted to the choice of the objective function. Copyright Springer-Verlag 2013

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Bibliographic Info

Article provided by Springer in its journal Journal of Economic Interaction and Coordination.

Volume (Year): 8 (2013)
Issue (Month): 2 (October)
Pages: 277-293

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Handle: RePEc:spr:jeicoo:v:8:y:2013:i:2:p:277-293

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Web page: http://www.springer.com/economics/economic+theory/journal/11403

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Related research

Keywords: Agent based model; Artificial markets; Calibration; Genetic algorithm; C13; C52; G10;

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  1. Peter Winker & Manfred Gilli & Vahidin Jeleskovic, 2007. "An Objective Function for Simulation Based Inference on Exchange Rate Data," Swiss Finance Institute Research Paper Series 07-01, Swiss Finance Institute.
  2. Day, R. & Huang, W., 1988. "Bulls, Bears And Market Sheep," Papers m8822, Southern California - Department of Economics.
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  6. Farmer, J. Doyne & Joshi, Shareen, 2002. "The price dynamics of common trading strategies," Journal of Economic Behavior & Organization, Elsevier, vol. 49(2), pages 149-171, October.
  7. Domenico Delli Gatti, Mauro Gallegati, Gianfranco Giulioni, Antonio Palestrini, -DISCUSSANT: Thomas Brenner, 2000. "Financial Fragility, Patterns Of Firms' Entry And Exit And Aggregate Dynamics," Computing in Economics and Finance 2000 282, Society for Computational Economics.
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  15. Robert Marks, 2007. "Validating Simulation Models: A General Framework and Four Applied Examples," Computational Economics, Society for Computational Economics, vol. 30(3), pages 265-290, October.
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Cited by:
  1. Jakob Grazzini & Matteo G. Richiardi, 2013. "Consistent Estimation of Agent-Based Models by Simulated Minimum Distance," LABORatorio R. Revelli Working Papers Series 130, LABORatorio R. Revelli, Centre for Employment Studies.

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