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Complexity
Volume 2017, Article ID 6752086, 16 pages
https://doi.org/10.1155/2017/6752086
Research Article

Connectivity, Information Jumps, and Market Stability: An Agent-Based Approach

Financial Engineering, Stevens Institute of Technology, Hoboken, NJ, USA

Correspondence should be addressed to Khaldoun Khashanah; ude.snevets@nahsahkk

Received 2 April 2017; Accepted 18 July 2017; Published 22 August 2017

Academic Editor: Benjamin M. Tabak

Copyright © 2017 Khaldoun Khashanah and Talal Alsulaiman. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

We propose a metamodel to assess simulated market stability by introducing information connectivity in an agent-based network. The market is occupied by heterogeneous agents with different behaviors, strategies, and information connectivity. A jump-diffusion process simulating events that may occur in the market is introduced. Agents information awareness varies along with agents propensity to respond to the information jump and jump size. A jump reshuffles market positions based on agents risk preferences determined by behavior and strategy. We examine the effect of information awareness on the volatility index of the simulated market in a scale-free market network. The analysis is performed by developing five experiments wherein the first one corresponds to systemic information ignorance state. Three experiments examine the role of hubs, normal agents, and hermits in the network when intermediate combinations of agent types have information awareness. The fifth experiment corresponds to the systemic information awareness with all agents being informed. The results show that the simulated market is driven to instability in a similar manner to patterns observed in a crisis where all agents become homogeneous in information awareness of events. Hubs contribute to increased connectivity and act as amplifiers of good, bad, or inaccurate information or sentiment.