Network Models in Economics and Finance by Valery A. Kalyagin Panos M. Pardalos & Themistocles M. Rassias

Author:Valery A. Kalyagin, Panos M. Pardalos & Themistocles M. Rassias
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

2.3.2 The Model with Black Swans

In this model agents are divided into two groups of “ordinary traders” and “black swans seekers.” The first group agents well predict the movement of prices in the period of economic stability, but cannot make right decisions in the crisis, and agents of the second group, on the contrary, not well predict price movements in stable periods, but almost do not make mistakes during the crisis (Taleb strategy).

Trading days division to stable Q-days and crisis R-days is important now not only for the forbiddance of short positions and margin buying, but also will be used in the description of the agents characteristics. Methods for those days separation are described in Sect. 2.2.

The difference in the characteristics is as follows. “Ordinary traders” in the regular Q-days guess the direction of price movement and make the right decision with probability p sign Q , which is assigned to the agent with the uniform distribution on the interval [p min1, p max1], with p min1 ≥ 0. 5. In the crisis R-days this probability falls and . “Black Swans seekers,” on the contrary, make the right decisions in the regular days with smaller probability than right decisions in the crisis: p sign Q from R[p min2, p max2], p max2 ≤ 0. 5 and . Thus agents from the group of “ordinary traders” should have better results in a stable economic situation and low in crisis, and agents using a Taleb strategy are more profitable during the crisis and often make losses in a stable market.

The purpose of the experiments is to determine which strategy is most effective and whether there are advantages in wealth or in the probability of bankruptcy of all strategy.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.