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Dynamics of Moving Average Rules in a Continuous-time Financial Market Model 15:10 Fri 8 May 09 :: LG29 :: Associate Prof (Tony) Xuezhong He :: University of Technology Sydney
Within a continuous-time framework, this paper proposes a stochastic
heterogeneous agent model (HAM) of financial markets with time
delays to unify various moving average rules used in discrete-time
HAMs. Intuitive conditions for the stability of the fundamental price of
the deterministic model in terms of agents' behavior parameters and
time delay are obtained. By focusing on the stabilizing role of the
time delay, it is found that an increase in time delay not only can
destabilize the market price, resulting in oscillatory market price
characterized by a Hopf bifurcation, but also can stabilize an
otherwise unstable market price. Numerical simulations show that the
stochastic model is able to characterize long deviations of the
market price from its fundamental price and excess volatility and
generate most of the stylized facts observed in financial markets.
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