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A prototype model of speculative dynamics with position-based trading
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Franke, Reiner (2007) A prototype model of speculative dynamics with position-based trading. Working Paper. Coventry: Warwick Business School, Financial Econometrics Research Centre. Working papers (Warwick Business School. Financial Econometrics Research Centre) (No.07-).
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Official URL: http://www2.warwick.ac.uk/fac/soc/wbs/research/wfr...
Abstract
To avoid the indeterminate and generally unbounded positions of the agents in financial market models with order-based trading, the paper considers the alternative of position-based strategies. To this end it extracts a prototype model from the literature, with fundamentalists, chartists, and a risk-averse market maker. The deterministic formulation of the model leads to a neutral delay differential equation of the price, whose mathematical analysis is non-standard. The stability conditions are nevertheless quite analogous to the order-based Beja–Goldman model. The effects of parameter variations are also studied in a stochastic setting, where special emphasis is put on the misalignment between price and the time-varying fundamental value, and on the differential profits of fundamentalists and chartists.
| Item Type: | Working or Discussion Paper (Working Paper) | ||||
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| Subjects: | H Social Sciences > HB Economic Theory Q Science > QA Mathematics |
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| Divisions: | Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre Faculty of Social Sciences > Warwick Business School |
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| Library of Congress Subject Headings (LCSH): | Assets (Accounting), Fundamental groups (Mathematics), Price -- Mathematical models, Equilibrium (Economics), Delay differential equations | ||||
| Series Name: | Working papers (Warwick Business School. Financial Econometrics Research Centre) | ||||
| Publisher: | Warwick Business School, Financial Econometrics Research Centre | ||||
| Place of Publication: | Coventry | ||||
| Official Date: | December 2007 | ||||
| Dates: |
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| Number: | No.07- | ||||
| Number of Pages: | 56 | ||||
| Status: | Not Peer Reviewed | ||||
| Access rights to Published version: | Open Access (Creative Commons) | ||||
| Funder: | Sixth Framework Programme (European Commission) (FP6) | ||||
| Grant number: | 516446 (SFP) |
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