6533b836fe1ef96bd12a1c80

RESEARCH PRODUCT

Monte Carlo simulations of a trader-based market model

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Abstract We present a detailed analysis of the stationary state and the parameter sensitivity of a trader-based market model suggested in Bak et al. (Physica A 246 (1997) 430). The model in question takes only so-called noise-traders into account and its properties are determined by mutual imitation of the traders and volatility feedback. We show that the stationary state of the model can be characterized by a log-normal distribution of the bid and ask prices relative to the current market price. In the stationary state the model is able to reproduce the so-called stylized facts of real markets. This property is stable under variation of the essential parameters of the model, number of traders, N , an asymmetry in the stochastic update of the price ideas of the traders, drift D , and the form of the volatility feedback. An extension of the model to take into account a more realistic distribution of the budgets of different market participants, however, would also need a more realistic modeling of the actual trading process to preserve these properties.