Nasdaq Market Simulation: Ins on a Major Market from the Science of Complex Adaptive Systems (Complex Systems and Interdisciplinary Science) PDF
Preview Nasdaq Market Simulation: Ins on a Major Market from the Science of Complex Adaptive Systems (Complex Systems and Interdisciplinary Science)
A NASDAQ MARKET SIMULATION INSIGHTS ON A MAJOR MARKET FROM THE SCIENCE OF COMPLEX ADAPTIVE SYSTEMS Complex Systems and Interdisciplinary Science (ISSN: 1793-4540) Series Editors: Felix Reed-Tsochas (University of Oxford, UK) Neil Johnson (University of Oxford, UK) Associate Editors: Brian Arthur Philip Maini Santa Fe Institute, Spain University of Oxford, UK Martin Nowak Robert Axtell Harvard University, USA The Brookings Institution, USA Ricard Solé Stefan Bornholdt Santa Fe Institute, Spain University of Leipzig, Germany Dietrich Stauffer Janet Efstathiou University of Cologne, Germany University of Oxford, UK Kagan Tumer Pak Ming Hui NASA Ames Research Center, USA The Chinese University of Hong Kong, China Published: Vol. 1 A Nasdaq Market Simulation: Insights on a Major Market from the Science of Complex Adaptive Systems by Vincent Darley & Alexander V. Outkin Forthcoming: Large Scale Structure and Dynamics of Complex Networks Alessandro Vespignani & Guido Caldarelli Coping with Complexity: Understanding and Managing Complex Agent-Based Dynamical Networks Janet Efstathiou, Neil F. Johnson & Felix Reed-Tsochas Juliet - A NASDAQ Market.pmd 2 2/2/2007, 3:00 PM Complex Systems and Interdisciplinary Science Vol. 1 A NASDAQ MARKET SIMULATION INSIGHTS ON A MAJOR MARKET FROM THE SCIENCE OF COMPLEX ADAPTIVE SYSTEMS Vincent Darley President & CEO of Eurobios, UK Alexander V Outkin Los Alamos National Laboratory, USA World Scientific N E W J E R S E Y • L O N D O N • S I N G A P O R E • B E I J I N G • S H A N G H A I • H O N G K O N G • TA I P E I • C H E N N A I Published by World Scientific Publishing Co. Pte. Ltd. 5 Toh Tuck Link, Singapore 596224 USA office: 27 Warren Street, Suite 401-402, Hackensack, NJ 07601 UK office: 57 Shelton Street, Covent Garden, London WC2H 9HE Library of Congress Cataloging-in-Publication Data Darley, Vincent. A NASDAQ market simulation : insights on a major market from the science of complex adaptive systems / by Vincent Darley & Alexander V. Outkin. p. cm. ISBN-13 978-981-270-001-8 -- ISBN-10 981-270-001-3 (alk. paper) Includes bibliographical references and index. 1. NASDAQ (Computer network). 2. Stock exchanges--Computer simulation. I. Outkin, Alexander. V. HG4574.2 .D37 2007 332.64'30973--dc22 2006048900 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. Copyright © 2007 by World Scientific Publishing Co. Pte. Ltd. All rights reserved. This book, or parts thereof, may not be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording or any information storage and retrieval system now known or to be invented, without written permission from the Publisher. For photocopying of material in this volume, please pay a copying fee through the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA. In this case permission to photocopy is not required from the publisher. Printed in Singapore. Juliet - A NASDAQ Market.pmd 1 2/2/2007, 11:23 AM January26,2007 10:50 WSPC/BookTrimSizefor9inx6in NasdaqBook2004ws With love to Pilar and Troy who gave endless support throughout the long and difficult birth of this book To my wife Vlada and my daughters Yana and Victoria for the joy and happiness you bring v January26,2007 10:50 WSPC/BookTrimSizefor9inx6in NasdaqBook2004ws TThhiiss ppaaggee iinntteennttiioonnaallllyy lleefftt bbllaannkk January26,2007 10:50 WSPC/BookTrimSizefor9inx6in NasdaqBook2004ws Preface This research started in 1998 when Bios Group and Nasdaq entered into a collaborationtoexplorenewwaystobetterunderstandNasdaq’soperating world. One set of goals was to explore the effects, including unintended consequences, of the market microstructure, market rules, and changes to them, on the behavior of participants such as market makers and traders in the Nasdaq market, and thereby on the dynamics and behavior of the marketasawhole. Forreasonsthatwillbecomeclear,themeanschosento pursuethesegoalswastocreateagent-basedmodelsoftheNasdaqmarket. Stock markets in general, and Nasdaq in particular, have undergone a period of rapid change in the past few years, which produced sweeping changesinthemarket’sbehavior. Thenatureanddirectionofthosechanges are still far from certain; however, they are certainly dramatic. Therefore, it is of the utmost importance to understand what can happen so that markets and their regulators have sufficient informationto prepare for new changes in the future, potentially by making well-informed adjustments to some of their rules and infrastructure. One of the most important issues in 1998 was the forthcoming decimal- ization. Decimalization means a change to expressing prices in a decimal system,ratherthanindollarsandfractionsofdollars,andtherelatedques- tionsofwhattheminimumticksize(orpricechange)inthemarketsshould be, and what effects a particular minimum tick size might have on the dy- namicsofthemarket,anditsfairness,volatility,pricediscovery,etc. Much of the recent history of Nasdaq and NYSE prices were quoted in $1/8ths and $1/16ths, but in 1998 decimalization was being planned; hence this was a very important issue at the time. The goal of this book is two- vii January26,2007 10:50 WSPC/BookTrimSizefor9inx6in NasdaqBook2004ws viii A Nasdaq Market Simulation fold: first, to describe our research in investigating this question — how decimalization, and tick size reductions in particular, affect the market’s overall behavior, and the behavior of market’s individual participants; and second, to present a conceptual agent-based market modeling framework and its implementation. This book will be useful to the people and organizations involved in market research and operations — market modelers, stock brokers, market makers,daytraders,etc. Itwillalsobeusefultoresearchersinacademiaas a welcome departure from more traditional perfectly rational, equilibrium or econometrics based approaches. It will also be useful to policy makers as a presentation of a cohesive conceptual framework and of a test system for evaluating the impacts of various policy and rule changes. And last, but not least, it will be useful to anyone who wants to understand how the observed market dynamics arises from interaction of behaviors of a market’s individual participants and components. However, this is not a cookbook: while we provide a significant amount of detail on how the simulation was constructed and how the results were obtained, it does not providestepbystepinstructionsonhowasimilarsimulationcanbecreated. Additional supplementary materials for this book and for the simulation model described here can be found at www.agentsim.com. Much of the research described herein was performed in collaboration with Tony Plate, Richard Palmer, Isaac Saias, Vladimir Makhankov, Bill Reynolds, Manoj Gambhir, Gerard Weisbuch, Frank Gao, and Mary Mon- toya as part of Bios Group work financially supported by Nasdaq. Signif- icant contributors to the reports that served as a foundation for specific chapters are acknowledged in those chapters. We acknowledge Bios Group roleandsupportindevelopingthematerialsforthebook. WethankVince HockettandBiosGroupmanagementforgrantingusthepublicationrights for this material. The views expressed here are those of the authors and are not necessarily reflective of views at the Bios Group or Nasdaq. Since this work was carried out, Bios Group operations have been sold, and both authors have moved on, with Vince setting up a branch of Eu- robios in London, UK, and Sasha joining the Los Alamos National Lab- oratory. Both authors continue to apply the techniques and approaches discussed here to a wide variety of interesting problems, of both a research and practical nature. TheauthorsaregratefultoAlBerkeley,MikeBrown,StuartKauffman, Bob MacDonald, Bennett Levitan, Richard Palmer, Per Bak, Isaac Saias, Martin Shubik, Jeff Smith and other members of the Nasdaq Economic January26,2007 10:50 WSPC/BookTrimSizefor9inx6in NasdaqBook2004ws Preface ix Research group, Simon Spencer, Jon Tarnow, Douglas Patterson, and oth- ers for their valuable comments and suggestions. We are indebted to Rob Axtellforhiscontinuedsupportandencouragement. WethankPaulaLozar for editing help. We thank the editorial staff at World Scientific for their help and patience. Any errors which may remain are of course the sole responsibility of the authors.
Description:The list of books you might like
