Indirect Estimation of the Parameters of Agent Based Models of Financial Markets

FAME Working Paper No. 38

24 Pages Posted: 25 Feb 2002

See all articles by Manfred Gilli

Manfred Gilli

University of Geneva - Research Center for Statistics; Swiss Finance Institute

Peter Winker

University of Giessen - Department of Economics

Date Written: November 2001

Abstract

Agent based models take into account limited rational behaviour of individuals acting on financial markets. Explicit simulation of this behaviour and the resulting interaction of individuals provide a description of aggregate financial market time series. Although the outcomes of such simulations often exhibit similarities with real financial market time series, methods for explicit validation are required. This paper proposes validation using simulation based indirect estimation. It uses typical characteristic moments of financial market data to assess the similarity of simulation outcomes. Furthermore, the parameters of the agent based models can be estimated by maximizing this similarity. The paper presents details of this estimation approach and first results for the US-$/DM exchange rate.

Keywords: Agent Based Models, Indirect Estimation, Validation

JEL Classification: C15, G12, D83

Suggested Citation

Gilli, Manfred and Winker, Peter, Indirect Estimation of the Parameters of Agent Based Models of Financial Markets (November 2001). FAME Working Paper No. 38. Available at SSRN: https://ssrn.com/abstract=300220 or http://dx.doi.org/10.2139/ssrn.300220

Manfred Gilli (Contact Author)

University of Geneva - Research Center for Statistics ( email )

Geneva
Switzerland
+41223798222 (Phone)
+41223798299 (Fax)

HOME PAGE: http://www.unige.ch/ses/metri/gilli/

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Peter Winker

University of Giessen - Department of Economics ( email )

Licher Str. 62
D-35394 Giessen, DE
Germany

HOME PAGE: http://wiwi.uni-giessen.de/home/oekonometrie/

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