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On the complicated price dynamics of a simple one-dimensional discontinuous financial market model with heterogeneous interacting traders

  • Fabio Tramontana

    ()

    (Department of Economics, University of Ancona, Italy)

  • Frank Westerhoff

    ()

    (University of Bamberg)

  • Laura Gardini

    ()

    (Department of Economics and Quantitative Methods, University of Urbino, Italy)

We develop a financial market model with heterogeneous interacting agents: market makers adjust prices with respect to excess demand, chartists believe in the persistence of bull and bear markets and fundamentalists bet on mean reversion. Moreover, speculators trade asymmetrically in over and undervalued markets and while some of them determine the size of their orders via linear trading rules others always trade the same amount of assets. The dynamics of our model is driven by a one-dimensional discontinuous map. Despite the simplicity of our model, analytical, graphical and numerical analysis reveals a surprisingly rich set of interesting dynamical behaviors.

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File URL: http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_10_05.pdf
File Function: First version, 2010
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Paper provided by University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini in its series Working Papers with number 1005.

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Length: 38 pages
Date of creation: 2010
Date of revision: 2010
Handle: RePEc:urb:wpaper:10_05
Contact details of provider: Web page: http://www.econ.uniurb.it/
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  1. Menkhoff, Lukas & Taylor, Mark P., 2006. "The Obstinate Passion of Foreign Exchange Professionals: Technical Analysis," Hannover Economic Papers (HEP) dp-352, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  2. Gardini, L. & Hommes, C.H. & Tramontana, F. & de Vilder, R., 2009. "Forward and Backward Dynamics in implicitly defined Overlapping Generations Models," CeNDEF Working Papers 09-02, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
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  7. Carl Chiarella & Roberto Dieci & Laura Gardini, 2005. "The Dynamic Interaction of Speculation and Diversification," Applied Mathematical Finance, Taylor & Francis Journals, vol. 12(1), pages 17-52.
  8. Westerhoff, Frank H., 2004. "Multiasset Market Dynamics," Macroeconomic Dynamics, Cambridge University Press, vol. 8(05), pages 596-616, November.
  9. LeBaron, Blake, 2006. "Agent-based Computational Finance," Handbook of Computational Economics, in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 24, pages 1187-1233 Elsevier.
  10. Fabio Tramontana & Laura Gardini & Piero Ferri, 2010. "The dynamics of the NAIRU model with two switching regimes," Working Papers 1004, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2010.
  11. Frank Westerhoff, 2004. "The effectiveness of Keynes-Tobin transaction taxes when heterogeneous agents can trade in different markets: A behavioral finance approach," Computing in Economics and Finance 2004 14, Society for Computational Economics.
  12. Day, Richard H. & Pianigiani, Giulio, 1991. "Statistical dynamics and economics," Journal of Economic Behavior & Organization, Elsevier, vol. 16(1-2), pages 37-83, July.
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  21. repec:att:wimass:9621 is not listed on IDEAS
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