dorsal/arxiv
View SchemaThe demise of constant price impact functions and single-time step models of speculation
| Authors | Damien Challet |
|---|---|
| Categories | |
| ArXiv ID | physics/0608013 |
| URL | https://arxiv.org/abs/physics/0608013 |
| DOI | 10.1016/j.physa.2007.03.049 |
Abstract
Constant and symmetric price impact functions, most commonly used in agent-based market modelling, are shown to give rise to paradoxical and inconsistent outcomes in the simplest case of arbitrage exploitation when open-hold-close actions are considered. The solution of the paradox lies in the non-constant nature of real-life price impact functions. A simple model that includes explicit position opening, holding, and closing is briefly introduced and its information ecology discussed, shedding new light on the relevance of the Minority Game to the study of financial markets.
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"abstract": "Constant and symmetric price impact functions, most commonly used in\nagent-based market modelling, are shown to give rise to paradoxical and\ninconsistent outcomes in the simplest case of arbitrage exploitation when\nopen-hold-close actions are considered. The solution of the paradox lies in the\nnon-constant nature of real-life price impact functions. A simple model that\nincludes explicit position opening, holding, and closing is briefly introduced\nand its information ecology discussed, shedding new light on the relevance of\nthe Minority Game to the study of financial markets.",
"arxiv_id": "physics/0608013",
"authors": [
"Damien Challet"
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"categories": [
"physics.soc-ph",
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"doi": "10.1016/j.physa.2007.03.049",
"title": "The demise of constant price impact functions and single-time step models of speculation",
"url": "https://arxiv.org/abs/physics/0608013"
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