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The Effect of Resilience in Optimal Execution with Artificial-Market Approach

  • Hiroyuki Matsui
  • Ryo Ohyama
Chapter
Part of the Evolutionary Economics and Social Complexity Science book series (EESCS, volume 4)

Abstract

This chapter reexamines the optimality of Obizhaeva and Wang’s strategy by replacing their assumption of resilience given in functional form with resilience caused by trader behavior. This attempt is based on the idea that trading causes every financial market phenomenon. In other words, stock price change occurs only as the result of trades. In that sense, resilience exogenously given in a functional form is not realistic since it does not consider trading behavior. This thesis focuses on the modeling of trader behavior. Three models are proposed and examined to determine their validity. We name these models the full, low, and zero intelligence models, respectively. The three models are named according to how strategic they are. After examining the validity of each model, we try to simulate the strategies of Bertsimas and Lo and Obizhaeva and Wang by replacing resilience given in a functional form with each validated model. Through simulation of the total execution costs of each optimal strategy, we can check which strategy is better. Obizhaeva and Wang’s strategy is said to always outperform that of Bertsimas and Lo under the assumption that resilience follows a certain functional form. This thesis casts doubt on this assumption owing to its arbitrary nature.

Keywords

Spot Price Limit Price Execution Cost Market Impact Artificial Market 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer Japan 2016

Authors and Affiliations

  1. 1.Kyoto UniversityKyotoJapan

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