NDLI: Consentaneous Agent-Based and Stochastic Model of the Financial Markets

Content Provider	PubMed Central
Author	Gontis, Vygintas Kononovicius, Aleksejus
Editor	Preis, Tobias
Copyright Year	2014
Abstract	We are looking for the agent-based treatment of the financial markets considering necessity to build bridges between microscopic, agent based, and macroscopic, phenomenological modeling. The acknowledgment that agent-based modeling framework, which may provide qualitative and quantitative understanding of the financial markets, is very ambiguous emphasizes the exceptional value of well defined analytically tractable agent systems. Herding as one of the behavior peculiarities considered in the behavioral finance is the main property of the agent interactions we deal with in this contribution. Looking for the consentaneous agent-based and macroscopic approach we combine two origins of the noise: exogenous one, related to the information flow, and endogenous one, arising form the complex stochastic dynamics of agents. As a result we propose a three state agent-based herding model of the financial markets. From this agent-based model we derive a set of stochastic differential equations, which describes underlying macroscopic dynamics of agent population and log price in the financial markets. The obtained solution is then subjected to the exogenous noise, which shapes instantaneous return fluctuations. We test both Gaussian and q-Gaussian noise as a source of the short term fluctuations. The resulting model of the return in the financial markets with the same set of parameters reproduces empirical probability and spectral densities of absolute return observed in New York, Warsaw and NASDAQ OMX Vilnius Stock Exchanges. Our result confirms the prevalent idea in behavioral finance that herding interactions may be dominant over agent rationality and contribute towards bubble formation.
Related Links	http://dx.doi.org/10.1371/journal.pone.0102201
Starting Page	102201
File Format	PDF
ISSN	19326203
e-ISSN	19326203
Journal	PLoS ONE
Issue Number	7
Volume Number	9
Language	English
Publisher	Public Library of Science
Publisher Date	2014-07-01
Access Restriction	Open
Rights Holder	Public Library of Science
Subject Keyword	Biochemistry, Genetics and Molecular Biology(all) Agricultural and Biological Sciences(all) Medicine(all) Research in Higher Education
Content Type	Text
Resource Type	Article
Subject	Multidisciplinary

Sl.	Authority	Responsibilities	Communication Details
1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
2	Indian Institute of Technology Kharagpur	Host Institute of the Project: The host institute of the project is responsible for providing infrastructure support and hosting the project	https://www.iitkgp.ac.in
3	National Digital Library of India Office, Indian Institute of Technology Kharagpur	The administrative and infrastructural headquarters of the project	Dr. B. Sutradhar bsutra@ndl.gov.in
4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
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7	National Digital Library of India Club (NDLI Club)	Queries related to NDLI Club formation, support, user awareness program, seminar/symposium, collaboration, social media, promotion, and outreach	clubsupport@ndl.gov.in
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9	IDR Setup or Support	Queries related to establishment and support of Institutional Digital Repository (IDR) and IDR workshops	idr@ndl.gov.in

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