James Peng Lung Tan

  1. Understanding agent-based models of financial markets: a bottom-up approach based on order parameters and phase diagrams.

    Authors: Siew Ann Cheong, Ribin Lye, James Peng Lung Tan
    Subjects: Trading and Market Microstructure
    Abstract

    We describe a bottom-up framework, based on the identification of appropriate
    order parameters and determination of phase diagrams, for understanding
    progressively refined agent-based models and simulations of financial markets.
    We illustrate this framework by starting with a deterministic toy model,
    whereby $N$ independent traders buy and sell $M$ stocks through an order book
    that acts as a clearing house. The price of a stock increases whenever it is
    bought and decreases whenever it is sold. Price changes are updated by the
    order book before the next transaction takes place.

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