Table of Contents Author Guidelines Submit a Manuscript
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.

Linked References

  1. K. Khashanah and T. Alsulaiman, “Network theory and behavioral finance in a heterogeneous market environment,” Complexity, vol. 21, no. S2, pp. 530–554, 2016. View at Publisher · View at Google Scholar · View at MathSciNet · View at Scopus
  2. R. C. Merton, “Option pricing when underlying stock returns are discontinuous,” Journal of Financial Economics, vol. 3, no. 1-2, pp. 125–144, 1976. View at Publisher · View at Google Scholar · View at Scopus
  3. G. Kim and H. M. Markowitz, “Investment rules, margin, and market volatility,” The Journal of Portfolio Management, vol. 16, no. 1, pp. 45–52, 1989. View at Publisher · View at Google Scholar
  4. D. K. Gode and S. Sunder, “Allocative efficiency of markets with zero-intelligence traders: market as a partial substitute for individual rationality,” Journal of Political Economy, vol. 101, no. 1, pp. 119–137, 1993. View at Publisher · View at Google Scholar
  5. W. A. Brock and C. H. Hommes, “Heterogeneous beliefs and routes to chaos in a simple asset pricing model,” Journal of Economic Dynamics and Control, vol. 22, no. 8-9, pp. 1235–1274, 1998. View at Publisher · View at Google Scholar · View at MathSciNet
  6. B. LeBaron, W. B. Arthur, and R. Palmer, “Time series properties of an artificial stock market,” Journal of Economic Dynamics and Control, vol. 23, no. 9-10, pp. 1487–1516, 1999. View at Publisher · View at Google Scholar · View at Scopus
  7. G. Iori, “A microsimulation of traders activity in the stock market: The role of heterogeneity, agents' interactions and trade frictions,” Journal of Economic Behavior and Organization, vol. 49, no. 2, pp. 269–285, 2002. View at Publisher · View at Google Scholar · View at Scopus
  8. J. Y. Campbell and A. S. Kyle, “Smart money noise trading and stock price behaviour,” Review of Economic Studies, vol. 60, no. 1, pp. 1–34, 1993. View at Publisher · View at Google Scholar · View at Scopus
  9. R. Bookstaber, “Using Agent-Based Models for Analyzing Threats to Financial Stability,” SSRN Electronic Journal, p. 24, 2012. View at Publisher · View at Google Scholar
  10. R. Bookstaber, J. Cetina, G. Feldberg, M. Flood, and P. Glasserman, “Stress tests to promote finan-cial stability: Assessing progress and looking to the future,” Journal of Risk Management in Financial Institutions, vol. 7, no. 1, pp. 16–25, 2014. View at Google Scholar
  11. D. Sornette, “Physics and financial economics (1776–2014): puzzles, Ising and agent-based models,” Reports on Progress in Physics, vol. 77, no. 6, Article ID 062001, 062001, 28 pages, 2014. View at Publisher · View at Google Scholar · View at MathSciNet
  12. D. Helbing, “Systemic risks in society and economics,” Understanding Complex Systems, pp. 261–284, 2012. View at Publisher · View at Google Scholar · View at Scopus
  13. S. Thurner, J. D. Farmer, and J. Geanakoplos, “Leverage causes fat tails and clustered volatility,” Quantitative Finance, vol. 12, no. 5, pp. 695–707, 2012. View at Publisher · View at Google Scholar · View at MathSciNet · View at Scopus
  14. S. Thurner, “Systemic financial risk: agent based models to understand the leverage cycle on national scales and its consequences,” IFP/FGS Working Paper, vol. 14, 2011. View at Google Scholar
  15. S. Poledna, S. Thurner, J. D. Farmer, and J. Geanakoplos, “Leverage-induced systemic risk under Basle II and other credit risk policies,” Journal of Banking and Finance, vol. 42, no. 1, pp. 199–212, 2014. View at Publisher · View at Google Scholar · View at Scopus
  16. T. U. Kuzubaş, B. Saltoğlu, and C. Sever, “Systemic risk and heterogeneous leverage in banking networks,” Physica A: Statistical Mechanics and its Applications, vol. 462, pp. 358–375, 2016. View at Publisher · View at Google Scholar · View at Scopus
  17. N. Gilbert, J. C. Hawksworth, and P. A. Swinney, “Technosocial predictive analytics for security informatics,” Security Informatics, pp. 30–35, 2009. View at Google Scholar
  18. E. J. Erlingsson, A. Teglio, S. Cincotti, H. Stefansson, J. T. Sturluson, and M. Raberto, “Housing market bubbles and business cycles in an agent-based credit economy,” Economics, vol. 8, no. 1, 2014. View at Publisher · View at Google Scholar · View at Scopus
  19. C. L. Carstensen, An agent-based model of the housing market, [M.S. thesis], University of Copenhagen, Denmark, 2015.
  20. P. Bjarnason, Macroeconomic efiects of varied mortgage instruments studied using agent-based model simulations, [M.S. thesis], Reykjavík University, Iceland, 2015.
  21. J. Ge, “Endogenous rise and collapse of housing price: an agent-based model of the housing market,” vol. 62, pp. 182–198, 2017. View at Publisher · View at Google Scholar
  22. V. Panchenko, S. Gerasymchuk, and O. . Pavlov, “Asset price dynamics with heterogeneous beliefs and local network interactions,” Journal of Economic Dynamics and Control, vol. 37, no. 12, pp. 2623–2642, 2013. View at Publisher · View at Google Scholar · View at MathSciNet
  23. C.-H. Yeh and C.-Y. Yang, “Social networks and asset price dynamics,” IEEE Transactions on Evolutionary Computation, vol. 19, no. 3, pp. 387–399, 2015. View at Publisher · View at Google Scholar · View at Scopus
  24. P. Delellis, F. Garofalo, F. L. Iudice, and E. Napoletano, “Wealth distribution across communities of adaptive financial agents,” New Journal of Physics, vol. 17, no. 8, Article ID 083003, 2015. View at Publisher · View at Google Scholar · View at Scopus
  25. P. DeLellis, A. DiMeglio, F. Garofalo, F. Lo Iudice, and C. Dovrolis, “The evolving cobweb of relations among partially rational investors,” Plos One, vol. 12, no. 2, Article ID e0171891, 2017. View at Publisher · View at Google Scholar
  26. K. Khashanah and T. Alsulaiman, “Heterogeneous financial markets as a network of networks,” Computational Social Networks, 2017. View at Google Scholar
  27. C. H. Hommes, “Chapter 23 Heterogeneous Agent Models in Economics and Finance,” Handbook of Computational Economics, vol. 2, pp. 1109–1186, 2006. View at Publisher · View at Google Scholar · View at Scopus
  28. B. LeBaron, “Chapter 24 Agent-based Computational Finance,” Handbook of Computational Economics, vol. 2, pp. 1187–1233, 2006. View at Publisher · View at Google Scholar · View at Scopus
  29. S.-H. Chen, C.-L. Chang, and Y.-R. Du, “Agent-based economic models and econometrics,” Knowledge Engineering Review, vol. 27, no. 2, pp. 187–219, 2012. View at Publisher · View at Google Scholar · View at Scopus
  30. T. Alsulaiman and K. Khashanah, “Bounded rational heterogeneous agents in artificial stock markets: Literature review and research direction,” International Journal of Social, Behavioral, Educational, Economic and Management Engineering, vol. 9, pp. 2038–2057, 2015. View at Google Scholar
  31. A.-L. Barabfiasi and R. Albert, “Emergence of scaling in random networks,” American Association for the Advancement of Science, vol. 286, no. 5439, pp. 509–512, 1999. View at Publisher · View at Google Scholar · View at MathSciNet
  32. S.-H. Chen and C.-C. Liao, “Price discovery in agent-based computational modeling of the artificial stock market,” in Genetic Algorithms and Genetic Programming in Computational Finance, pp. 335–356, Springer US, Berlin, 2002. View at Publisher · View at Google Scholar
  33. D. Kahneman and A. Tversky, “Prospect theory: an a nalysis of decision under risk,” Econometrica: Journal of the Econometric society, vol. 47, no. 2, pp. 263–292, 1979. View at Publisher · View at Google Scholar
  34. J. B. Williams, The theory of investment value, 1938.
  35. M. A. Bertella, F. R. Pires, L. Feng, and H. E. Stanley, “Confidence and the stock market: an agent-based approach,” PLos One, vol. 9, no. 1, Article ID e83488, 2014. View at Publisher · View at Google Scholar · View at Scopus
  36. R. G. Palmer, W. Brian Arthur, J. H. Holland, B. LeBaron, and P. Tayler, “Artificial economic life: a simple model of a stockmarket,” Physica D: Nonlinear Phenomena, vol. 75, no. 1-3, pp. 264–274, 1994. View at Publisher · View at Google Scholar · View at Scopus
  37. J. Derveeuw, “Market dynamics and agents behaviors: a computational approach,” in Artificial Economics, vol. 564, pp. 15–26, Springer, Berlin, 2006. View at Publisher · View at Google Scholar
  38. S. Martinez-Jaramillo and E. P. K. Tsang, “An heterogeneous, endogenous and coevolutionary GP-based financial market,” IEEE Transactions on Evolutionary Computation, vol. 13, no. 1, pp. 33–55, 2009. View at Publisher · View at Google Scholar · View at Scopus
  39. P. Tankov, Financial Modelling with Jump Processes, vol. 2, CRC press, Boca Raton, Fla, USA, 2003.
  40. D. Synowiec, “Jump-diffusion models with constant parameters for financial log-return processes,” Computers and Mathematics with Applications, vol. 56, no. 8, pp. 2120–2127, 2008. View at Publisher · View at Google Scholar · View at Scopus
  41. L. C. Freeman, “Centrality in social networks conceptual clarification,” Social Networks, vol. 1, no. 3, pp. 215–239, 1978-1979. View at Publisher · View at Google Scholar · View at Scopus