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Effects of Linear Feedback Trading in an Interactive Market Model

Title data

Baumann, Michael Heinrich:
Effects of Linear Feedback Trading in an Interactive Market Model.
Department of Mathematics, University of Bayreuth
Bayreuth , 2014 . - 6 p.

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Official URL: Volltext

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Project financing: Hanns-Seidel-Stiftung

Abstract in another language

In the literature a lot of articles about so-called feedback-based trading strategies, i.e., strategies that compute investment exclusively from their own gain exist. Price is therein treated as a disturbance variable in the technical application. With these strategies, astonishing results may be shown. However, the so-called price taker property is always assumed, that means that one’s own trading does not affect the price, which is quite unrealistic. In the work at hand, an interactive and thus
more realistic market model is introduced which is completely determined by the traders’ decisions. In this market model, distinct groups of traders can interact, e.g., feedback traders and noise traders, as they are considered to be relevant in economics in explaining real market prices. Furthermore, this interactive market model is a natural generalization of the geometric Brownian motion. Of course the model has to be bubble-prone to be realistic. The market model will be analyzed as well as the effects of linear feedback strategies and trading restrictions on the price. A way to calculate thresholds for the parameters to cause bubbles is provided. To conclude the work, backtesting on real market data is performed.

Further data

Item Type: Preprint, postprint, working paper, discussion paper
Additional notes: to be presented at the American Control Conference 2015
Keywords: linear feedback trading; interactive market model
Institutions of the University: Faculties
Faculties > Faculty of Mathematics, Physics und Computer Science
Faculties > Faculty of Mathematics, Physics und Computer Science > Department of Mathematics
Faculties > Faculty of Mathematics, Physics und Computer Science > Department of Mathematics > Chair Mathematics V (Applied Mathematics)
Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics I
Profile Fields
Profile Fields > Advanced Fields
Profile Fields > Advanced Fields > Nonlinear Dynamics
Faculties > Faculty of Law, Business and Economics
Faculties > Faculty of Law, Business and Economics > Department of Economics
Result of work at the UBT: Yes
DDC Subjects: 500 Science > 510 Mathematics
Date Deposited: 16 May 2015 21:00
Last Modified: 18 May 2015 06:08
URI: https://eref.uni-bayreuth.de/id/eprint/13789

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