Heterogeneous Agents

Since their introduction in 1973, options have become an important and very popular financial instrument. However, despite much research performed on the subject, the effects of option trading on the underlying asset market are still debated. Both empirical and theoretical studies have failed to point out how price volatility and volumes of the underlying asset are affected. In this paper we present the first study on the effects of an option market related to an underlying stock market, using an artificial financial market based on heterogeneous agents. We modeled a realistic European option using two market models. The microstructure of the first model is kept as simple as possible, being composed only of random traders. The second model is more complex and realistic, involving the presence of various kinds of trading strategies (random, fundamentalist and chartist). We show that the introduction of options, in the proposed models, tends to decrease the volatility of the underlying stock price. Moreover, the traders’ wealth can be strongly affected by the use of option hedging.

This chapter surveys work on dynamic heterogeneous agent models (HAMs) in economics and finance. Emphasis is given to simple models that, at least to some extent, are tractable by analytic methods in combination with computational tools. Most of these models are behavioral models with boundedly rational agents using different heuristics or rule of thumb strategies that may not be perfect,

Agent migration, in theory, makes it possible to bring computations to the resources required. In practice, however, homogeneity in programming language and/or agent platform is required. This paper presents an approach that supports heterogeneous agents and platforms: agents written in dierent languages can migrate between non-identical platforms. Instead of migrating the "code" (including data and state) of an agent, a

This paper presents stylized facts concerning the spot intra-daily foreign exchange markets. It first describes intra-daily data and proposes a set of definitions for the variables of interest. Empirical regularities of the foreign exchange intra-daily data are then grouped under three major topics: the distribution of price changes, the process of price formation and the heterogeneous structure of the market. The stylized facts surveyed in this paper shed new light on the market structure that appears composed of heterogeneous agents. It also poses several challenges such as the definition of price and of the time-scale, the concepts of risk and efficiency, the modeling of the markets and the learning process.

The money-age distribution is found to be hump-shaped for the US economy. The variation (inequality) of cash holdings within generations increases (declines) with age. Furthermore, cash holdings are found to be only weakly correlated ith both income and wealth. We analyze three motives for money demand in an overlapping generations model in order to explain this effect: 1) money in

A non-cooperative model of network formation is developed. Agents form links with others based on the cost of the link and its assessed benefit. Link formation is one-sided, i.e., agents can initiate links with other agents without their consent, provided the agent forming the link makes the appropriate investment. The model builds on the work of Bala and Goyal, but

This paper develops a theoretical model to explore the relationship between openness to trade and long-term income inequality. Empirical evidence on the issue is mixed, though greater inequality is often cited as a possible cost of trade liberalization. To quantify the effect of liberalization on inequality I calibrate a two-sector (agriculture and non-agriculture) open-economy macroeconomic model to the Mexican economy. Agents in the model are subject to idiosyncratic, uninsurable labor income risk, and precautionary saving generates endogenous distributions of wealth and income. When preferences are characterized by subsistence floor for food consumption, trade liberalization implies large welfare gains for low wealth agents. At the same time, liberalization increases long-run wealth and income inequality. After liberalization land-owners are worse off since the price of land falls along with the relative price of the agricultural commodity. When tariff revenue must be replaced by...

We introduce a multi-asset artificial financial market with finite amount of cash and number of stocks. The background trading is characterized by a random trading strategy constrained by the finiteness of resources and by market volatility. Stock price processes exhibit volatility clustering, fat-tailed distribution of returns and reversion to the mean. Three active trading strategies have been introduced and studied in two different market conditions: steady market and growing market with asset inflation. We show that the profitability of each strategy depends both on the periodicity of portfolio reallocation and on the market condition. The best performing strategy is the one that exploits the mean reversion characteristic of asset price processes.

Abstract This paper extends the consensus-based bundle algorithm (CBBA), a distributed task allocation framework previously developed by the authors, to address complex missions for a team of heterogeneous agents in a dynamic environment. The extended algorithm proposes appropriate handling of time windows of validity for tasks, fuel costs of the vehicles, and heterogeneity in the agent capabilities, while preserving the robust convergence properties of the original algorithm. An architecture to facilitate real-time task ...