Adding to the Regulator's Toolbox: Integration and Extension of Two Leading Market Models
AbstractAs demonstrated during the recent financial crisis, regulators require additional analytical tools to assess systemic risk in the financial sector. This paper describes one such tool; namely a novel market modeling and analysis capability. Our model builds upon two leading market models: one which emphasizes market micro-structure and another which emphasizes an ecology of trading strategies. We address a limitation of market modeling, namely the consideration of only one dominant trading strategy (i.e., long positions). Our model aligns closely with several widely held stylized facts of financial markets. And a final contribution of this work stems from our empirical analysis of the fractal nature of both empirical markets and our market model.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1105.5439.
Date of creation: May 2011
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-04 (All new papers)
- NEP-FMK-2011-06-04 (Financial Markets)
- NEP-RMG-2011-06-04 (Risk Management)
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