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Simulation of Simple Random Double Auction

The document summarizes a simulation of a simple random double auction model with one type of asset. In the model, agents have equal wealth or particular wealth distributions. The simulation observes price variations and characteristics like distributions, autocorrelations, and Allan variances for different agent wealth scenarios. It finds that price changes are normally distributed over long times but exponentially distributed over short times, consistent with real markets. Autocorrelations show slight anti-correlation at short times, also seen in reality. While the random model is simple, it captures significant features of actual financial markets.

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43 views1 page

Simulation of Simple Random Double Auction

The document summarizes a simulation of a simple random double auction model with one type of asset. In the model, agents have equal wealth or particular wealth distributions. The simulation observes price variations and characteristics like distributions, autocorrelations, and Allan variances for different agent wealth scenarios. It finds that price changes are normally distributed over long times but exponentially distributed over short times, consistent with real markets. Autocorrelations show slight anti-correlation at short times, also seen in reality. While the random model is simple, it captures significant features of actual financial markets.

Uploaded by

Jb Jb
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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SIMULATION OF SIMPLE RANDOM DOUBLE AUCTION J.

Bujokas1 (presenter)
1

Vilnius University, Physics Faculty J.Bujokas@post.skynet.lt

A random double auction is a usual model, used to describe econophysical systems [1, 2]. We numerically model a simple, completely random double auction with one type of shares and with many agents, who have equal (unitary) wealth. Later we introduce a system, having agents with particular wealth distribution (uniform or Levy). We observe the price variations in different cases and calculate different characteristics of the process: distributions, autocorrelation coefficients, Allan variances (useful information about which can be found in [3]) for price-change series. We find that price-changes for long time intervals is normally distributed as central limit theorem predicts. However, we find that price-change distribution tends to be exponential for short time scales. This fact relates our model with real markets, because price-change distributions are usually found to be exponentially truncated in reality [4]. We observe differences in Allan variance for different wealth distributions and find that in unitary wealth model Allan variance time dependence shows a Gaussian process clearly. However, for non-unitary wealth model variance curve becomes more complex, which again indicates, that process for short time scales is non-Gaussian (it is generally agreed that price-change statistics is non-Gaussian [4]). While observing autocorrelations, we find that for short times price-changes are slightly anticorrelated for all types of agent distributions, which is again apparent in real markets [4]. In conclusion, we claim that even a completely random double auction model has significant features typical of real markets and is a subject of further development.
1. 2. 3. 4. P. Bak, M. Paczuski and M. Shubik, Price Variations in a Stock Market with Many Agent (http://arxiv.org/PS_cache/cond-mat/pdf/9609/9609144.pdf, 1996). E. Smith, J.D. Farmer, L. Gillemot, S. Krishnamurthy, Statistical theory of continuous double auction (http://arxiv.org/PS_cache/cond-mat/pdf/0210/0210475.pdf, 2002). H. Hou, Modeling Inertial Sensors Errors Using Allan Variance (A Thesis Submitted to the Faculty of Graduate Studies in Partial Fulfilment of the Requirements for the Degree of Master of Science) , University of Calgary, Department of Geomatics Engineering (2004). K. Stalinas, Bose-Einstein Condensation in Financial Systems , Nonlinear Analysis: Modelling and Control, 2005, Vol. 10, No.3, 247-256.

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