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Agent-Based Models in Finance: Foundations, Explanatory Power and Applications

Speaker: Professor Thomas Lux

CQF Institute is proud to bring you a free online talk with Prof Thomas Lux on Agent-Based Models in Finance 

This event can earn you up to 2 CPD credits.

Abstract

The talk provides an introduction to the rich literature on agent-based modelling (ABM) in finance.  ABM uses stochastic simulation models of the interaction of a diverse ensemble of heterogeneous investors to mimic real-world patterns of financial trading within an artificial market. The main goal of the early literature in this area has been the explanation of the salient stylized facts (e.g., fat tails and heteroscedasticity). There has emerged a literature that provided a generic explanation of these features via the market process, in which an innocuous ‘news arrival process’ for fundamental factors (modelled as white noise) is magnified and transformed into a more volatile and fat tailed distribution of market returns by the interactions of the agents. Over the last decade, such agent-based models have reached a state of maturity that brought the tasks of statistical inference and goodness-of-fit of such models on the agenda of the research community. Using mostly relatively simple models of financial markets, a variety of statistical tools have meanwhile been developed to this end. We illustrate various such approaches and demonstrate how the empirical validation of agent-based models can also be used to extract information on ‘hidden’ variables such as sentiment which constitutes a salient building block of such models.

Speaker's Bio

Thomas Lux is Professor of Monetary Economics and International Finance at the University of Kiel. His research interests cover various theoretical and empirical aspects of financial and monetary economics that mostly require intense use of computational methods. Among others, he has been working on agent-based models of financial markets, multi-scale stochastic volatility models, and network models for the interbank market. From 2011 - 2016, Thomas was appointed as the Bank of Spain Chair in Computational Economics at the University of Jaume I, Castellon, Spain.