Exploring Financial Instability Through Agent-based Modeling Part 3: Summary and Future

Transcription

1 Exploring Financial Instability Through Agent-based Modeling Part 3: Summary and Future Blake LeBaron International Business School Brandeis University Mini course CIGI-INET: False Dichotomies November 2012, Waterloo, Ontario

2 Where are we going? Part 1: What are agent-based models? Simple models from finance Part 2: Adaptation and time series Heterogeneous gain learning Part 3: Current directions in agent design and applications Empirical validation Instability and macro connections LeBaron CIGI/INET November / 20

3 Overview Agent Technology Issues Empirical Validation Related Interesting Models Instability, Macroeconomics and Policy LeBaron CIGI/INET November / 20

4 Agent Technology Issues Empirical Validation Related Interesting Models Instability, Macroeconomics and Policy Agent Technology Issues LeBaron CIGI/INET November / 20

5 Levels of agent intelligence Simple agents Zero intelligence (ZI) Empirically driven Model driven (forced selling) Sophisticated Adaptive/learning (how much?) Dynamic optimization Behavioral LeBaron CIGI/INET November / 20

6 Future/current advances Multiple asset markets Networks Asynchronous actions LeBaron CIGI/INET November / 20

7 Analytic models Important for estimation/understanding Computational overlaps/testing Problems for analytics? Distributions matter (hard to summarize) Infra marginal traders and pricing Emergence/reducibility LeBaron CIGI/INET November / 20

8 Software Standard languages (objective) C++ Python Matlab netlogo Repast/Swarm LeBaron CIGI/INET November / 20

9 Agent Technology Issues Empirical Validation Related Interesting Models Instability, Macroeconomics and Policy Empirical Validation LeBaron CIGI/INET November / 20

10 Estimation Challenges Compute time Ergodicity/path dependence Model complexity/parameters Techniques and data to use Experiments (Hommes (2010)) Micro calibration Model identification/estimation/comparison Cars H. Hommes. The heterogeneous expectations hypotheis: Some evidence from the lab. Technical report, CeNDEF, University of Amsterdam, 2010 LeBaron CIGI/INET November / 20

11 Some estimated models Alfarano et al. (2005) Lux/Marchesi Boswijk et al. (2007) Long term stock market mean reversion Kouwenberg and Zwinkels (2010) Real estate Westerhoff and Reitz (2003) Foreign exchange Winker and Gilli (2001) Kirman model LeBaron CIGI/INET November / 20

12 Readings S. Alfarano, T. Lux, and F. Wagner. Estimation of agent-based models: The case of an asymeetric herding model. Computational Economics, 26(19-49), 2005 H. Peter Boswijk, Cars H. Hommes, and Sebastiano Manzan. Behavioral heterogeneity in stock prices. Journal of Economic Dynamics and Control, 31(6): , 2007 Roy Kouwenberg and Remco C. J. Zwinkels. Chasing trends in the u.s. housing market. Technical report, Erasmus Univeristy, Rotterdam, The Netherlands, 2010 F. H. Westerhoff and S. Reitz. Nonlinearities and cyclical behavior: The role of chartists and fundamentalists. Studies in Nonlinear Dynamics and Econometrics, 7, 2003 P. Winker and M. Gilli. Indirect estimation of the parameters of agent based models of financial markets. Technical Report 38, FAME, 2001 LeBaron CIGI/INET November 2012 note 1 of slide 11

13 Validation Computational reliability Docking (robust across software) Benchmarks Multiple time horizons Interacting with data/people Visualizations LeBaron CIGI/INET November / 20

14 Netlogo screen Blake LeBaron and Ryuichi Yamamoto. Order-splitting and long-memory in an order-driven market. European Physical Journal B, 73:51 57, 2010 LeBaron CIGI/INET November / 20

15 Dynamic interfaces Visualization important Flight simulators Learning tools LeBaron CIGI/INET November / 20

16 Agent Technology Issues Empirical Validation Related Interesting Models Instability, Macroeconomics and Policy Related Interesting Models LeBaron CIGI/INET November / 20

17 Related recent finance/macro models Market microstructure Chiarella et al. (2009) Cohen-Cole et al. (2010) Real estate Khandani et al. (2009) Geanakoplos et al. (2012) Labor markets Guerrero and Axtell (2012) LeBaron CIGI/INET November / 20

18 Readings Carl Chiarella, Giulia Iori, and Josep Perello. The impact of heterogeneous trading rules on the limit order book and order flows. Journal of Economic Dynamics and Control, 33: , 2009 Ethan Cohen-Cole, Andrei Kirilenko, and Eleonora Patacchini. Are networks priced? Network topology and systemic risk in a high liquidity market. Technical report, Robert Smith School of Business, University of Maryland, 2010 John Geanakoplos, Robert Axtell, Doyne Farmer, Peter Howwitt, Ben Conlee, Jon Goldstein, Matthew Hendrey, Nathan Palmer, and Chun-Yi Yang. Getting at systemic risk via an agent-based model of the housing market. American Economic Review, 102(3):1 9, 2012 Omar A. Guerrero and Robert L. Axtell. Unemployment volatility resulting from skew labor flow networks. Technical report, Krasnow Institute for Advanced Study, George Mason University, 2012 Amir E. Khandani, Andrew W. Lo, and Robert C. Merton. Systemic risk and the refinancing ratchet effect. Technical report, Massachusetts Institute of Technology, 2009 LeBaron CIGI/INET November 2012 note 1 of slide 16

19 Market microstructure Well defined institutions Important policy questions about stability Empirical issues Persistence of signed order flows Persistence of volatility Uncorrelated returns Does this matter at longer horizons? LeBaron CIGI/INET November / 20

20 Agent Technology Issues Empirical Validation Related Interesting Models Instability, Macroeconomics and Policy Instability, Macroeconomics and Policy LeBaron CIGI/INET November / 20

21 Connecting to macroeconomics Macro channels: asset prices investment Volatility/shocks Too much? Realistic? Institutions? LeBaron CIGI/INET November / 20

22 Policy uses Reduction and analysis Small versus large models Calibrated testbeds: Flash Crash Breaking standard models Resilient institutions LeBaron CIGI/INET November / 20