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Indirect Estimation of the Parameters of Agent Based Models of Financial Markets

  • Manfred GILLI,

    (University of Geneva)

  • Peter WINKER

    (International University in Germany)

Agent based models take into account limited rational behaviour of individuals acting on financial markets. Explicit simulation of this behaviour and the resulting interac-tion of individuals provide a description of aggregate financial market time series. Al-though the outcomes of such simulations often exhibit similarities with real financial market time series, methods for explicit validation are required. This paper proposes validation using simulation based indirect estimation. It uses typical characteristic moments of financial market data to assess the similarity of simulation outcomes. Fur-thermore, the parameters of the agent based models can be estimated by maximizing this similarity. The paper presents details of this estimation approach and first results for the US–$/DM exchange rate.

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Paper provided by International Center for Financial Asset Management and Engineering in its series FAME Research Paper Series with number rp38.

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Date of creation: Nov 2001
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Handle: RePEc:fam:rpseri:rp38
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