Agent-Based Model in Directional-Change Intrinsic Time

30 Pages Posted: 10 Sep 2018 Last revised: 21 Feb 2019

Date Written: August 29, 2018

Abstract

We describe an agent-based model where trades happen in event-based time called directional-change intrinsic time. Events are defined as the reversal price moves of a directional-change threshold from a local extreme. The price impact of traded volumes is modelled according to the empirically observed squared root impact function. The time series generated by the agents is characterised by statistical properties typical for foreign exchange rates: low auto-correlation of returns, fat-tailed distribution of returns, aggregated normality, and the price jump scaling law. Furthermore, we introduce and use as a benchmark, the overshoot scaling law, which is an omnipresent feature of liquid markets and relates the expected length of price overshoots to the length of the corresponding directional-change threshold.

Keywords: Agent-Based Model, Stylized Facts, Forex, Directional-Change, Intrinsic Time, Scaling Laws

JEL Classification: G17, D47, C15

Suggested Citation

Petrov, Vladimir and Golub, Anton and Olsen, Richard B., Agent-Based Model in Directional-Change Intrinsic Time (August 29, 2018). Available at SSRN: https://ssrn.com/abstract=3240456 or http://dx.doi.org/10.2139/ssrn.3240456

Vladimir Petrov (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Anton Golub

Flov technologies ( email )

Gotthardstrasse 26
Zug, Zug 6300
Switzerland

Richard B. Olsen

Lykke Corp ( email )

Baarerstrasse 2
Zug, Zug 6300
Switzerland
41793368950 (Phone)

HOME PAGE: http://www.lykke.com

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