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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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File URL: http://hdl.handle.net/10.1007/s11403-012-0096-3
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Article provided by Springer & Society for Economic Science with Heterogeneous Interacting Agents 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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Keywords: Agent based model; Artificial markets; Calibration; Genetic algorithm; C13; C52; G10;

Find related papers by JEL classification:

  • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
  • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
  • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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  1. Paolo Pellizzari & Arianna Dal Forno, 2005. "A comparison of different trading protocols in an agent-based market," Computational Economics 0511001, EconWPA.
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Cited by:

  1. Giorgio Fagiolo & Andrea Roventini, 2016. "Macroeconomic Policy in DSGE and Agent-Based Models Redux: New Developments and Challenges Ahead," LEM Papers Series 2016/17, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  2. Grazzini, Jakob & Richiardi, Matteo, 2013. "Consistent Estimation of Agent-Based Models by Simulated Minimum Distance," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201335, University of Turin.
  3. Alexandru Mandes & Peter Winker, 2015. "Complexity and Model Comparison in Agent Based Modeling of Financial Markets," MAGKS Papers on Economics 201528, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  4. Francesco Lamperti, 2016. "Empirical Validation of Simulated Models through the GSL-div: an Illustrative Application," LEM Papers Series 2016/18, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  5. Grazzini, Jakob & Richiardi, Matteo, 2015. "Estimation of ergodic agent-based models by simulated minimum distance," Journal of Economic Dynamics and Control, Elsevier, vol. 51(C), pages 148-165.
  6. Donovan Platt & Tim Gebbie, 2016. "The Problem of Calibrating a Simple Agent-Based Model of High-Frequency Trading," Papers 1606.01495, arXiv.org.

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