Monday, November 28, 2016

Can Agent-Based Models Probe Market Microstructure? Donovan Platt, Tim Gebbie (2016)

Can Agent-Based Models Probe Market Microstructure?
Authors: Donovan Platt, Tim Gebbie
Abstract: We extend prior evidence that naively using intraday agent-based models that involve realistic order-matching processes for modeling continuous-time double auction markets seems to fail to be able to provide a robust link between data and many model parameters, even when these models are able to reproduce a number of well-known stylized facts of return time series. We demonstrate that while the parameters of intraday agent-based models rooted in market microstructure can be meaningfully calibrated, those exclusively related to agent behaviors and incentives remain problematic. This could simply be a failure of the calibration techniques used but we argue that the observed parameter degeneracies are most likely a consequence of the realistic matching processes employed in these models. This suggests that alternative approaches to linking data, phenomenology and market structure may be necessary and that the stylized fact-centric validation of intraday agent-based models is insufficient, and warns that increased mechanistic complexity of agent-based market models may lead to flawed insights.

Comments: 15 pages, 8 figures
Subjects: Computational Finance (q-fin.CP); Trading and Market Microstructure (q-fin.TR)
Cite as: arXiv:1611.08510 [q-fin.CP]
 (or arXiv:1611.08510v1 [q-fin.CP] for this version)

Sunday, November 27, 2016

On regime change and hierarchical causation

60 years ago in Nov 1956, a small island economy took the first giant steps towards balanced education, health and significant reduction of local inequality, adaptively addressing economic sustainability thereafter. The Granma news cover from 1986 challenges perspectives with respect to the quantification of emergence. RIP Prof Castro. 

Thursday, November 17, 2016

A transdiciplinary discourse on finance and economics

Policy dead-end: Central Banks’ continued use of DSGE Models

From Andre Breedt's Op-Ed 15/11/2016 POLITHEOR :

" ...The DSGE model has been the workhorse of central banks since the early 1980’s and has suffered from abundant and scathing critique: Olivier Blanchard argues that DSGE models are “seriously flawed” and Paul Romer – a doyen of the neo-classical economic fraternity – accuses these macroeconomic models of “attribute[ing] fluctuations in aggregate variables to imaginary causal forces that are not influenced by the action that any person takes”. ..."

... A basic proposal is to increase collaboration between the core orthodoxy of economics and ancillary fields such as econophysics, and move towards a discourse of multi or interdisciplinary coordination. ... "

Towards curing tunnel vision with ABMs

Here are some extracts from the article citing Haldane's recent remarks: 

“One of the potential failings of the economics profession is that it may have borrowed too little from other disciplines -- a methodological mono-culture,” he said in a speechon Thursday in Cambridge, England.

Contrasting ABM models with traditional micro-founded economic ones, Haldane said the big picture usually looks very different from the small one.
“Aggregating from the microscopic to the macroscopic is very unlikely to give sensible insights into real world behavior, for the same reason the behavior of a single neuron is uninformative about the threat of nuclear winter.”

Bon voyage to Dieter

The 2016 team celebrated Dieter's invaluable contributions (2012-2016)  at Wits with lunch before his next research position at Oxford. Not an ending, but cheers to many more new beginnings.

Some humour: C. Rhodes is attributed to saying  "Wherever you turn your eye — except in science — an Oxford man is at the top of the tree." 

Dieter Hendricks graduated on 7 Dec 2016 and has taken up a research fellowship in UK. Missing from this pic are Mike Harvey and Fayaaz Loonat, who offered up many hours towards research and pedagogic resources in 2016 as well!
Seasons greetings and best wishes for 2017!