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Agent-based model in directional-change intrinsic time


researchhub - October 28, 2018 - 0 comments

In this publication Vladimir Petrov (Department of Banking and Finance, University of Zurich), Anton Golub (Lykke), and Richard Olsen (Lykke) describe an agent-based model where trades happen in event-based time called directional-change intrinsic time. Events defined as the reversal price move of a certain threshold from the local extreme. The price impact of traded volumes is modeled according to the empirically observed squared root impact function typical for the Forex market. The generated time series reproduces statistical properties of foreign exchange rates which are four traditional stylized facts: low auto-correlation of returns, fat-tailed distribution of returns, aggregational normality, price jumps scaling law; and a new method: overshoot scaling law which is an omnipresent feature of all liquid markets and states that the expected length of overshoots is equal to the length of the corresponding directional-change threshold.

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