Paper: arXiv 2311.12247

Abstract

This paper presents an agent based model of an electronic market with two types of trading agents. One type follows a mean reverting strategy and the other, the speculative trader, tracks the maximum realised return over recent trades. The speculators have a distribution of returns concentrated on negative returns, with a small fraction making profits. The market experiences an increased volatility and prices that greatly depart from the fundamental value of the asset. Our research provides synthetic datasets of the order book to study its dynamics under different levels of speculation

Complexity vs Empirical Score

  • Math Complexity: 4.5/10
  • Empirical Rigor: 6.0/10
  • Quadrant: Street Traders — practical and empirical, lighter on theory

Why this score: The paper relies on established agent-based modeling and stochastic processes (e.g., OU, Poisson, exponential distributions) rather than novel advanced mathematics, placing it in the lower-mid range for math complexity. It is highly implementation-heavy, providing specific code algorithms and describing synthetic order book datasets for replication, which indicates strong empirical rigor for a simulation study.

Research Flowchart

  flowchart TD
  A["Research Goal"] --> B["Define Agents & Strategies"]
  B --> C["Set Market Rules & Parameters"]
  C --> D["Run Simulations"]
  D --> E["Generate Synthetic Order Book Data"]
  E --> F["Analyze Price, Vol & Bubble Formation"]
  F --> G["Key Outcomes"]
  
  style A fill:#f9f,stroke:#333,stroke-width:2px
  style G fill:#9f9,stroke:#333,stroke-width:2px

Cited References (43)

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  5. ABIDES: Towards High-Fidelity Market Simulation for AI Research (2019) — link
  6. ABIDES-Gym: Gym Environments for Multi-Agent Discrete Event Simulation and Application to Financial Markets (2021) — link
  7. A Synthetic Limit Order Book Dataset for Benchmarking Forecasting Algorithms under Distributional Shift (2022)
  8. Time-varying demand for lottery: Speculation ahead of earnings announcements (2020) — link
and 35 more
  1. Scenario-Based Synthetic Dataset Generation for Mobile Money Transactions (2022) — link
  2. Get Real: Realism Metrics for Robust Limit Order Book Market Simulations (2021) — link
  3. A mathematical approach to order book modeling (2013)
  4. How to Evaluate Trading Strategies: Single Agent Market Replay or Multiple Agent Interactive Simulation? (2019) — link
  5. High frequency trading strategies, market fragility and price spikes: an agent based model perspective (2019)
  6. Market making and mean reversion (2011)
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  8. Market makers activity: behavioural and agent based approach (2022)
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  35. Reprint of: Do retail traders destabilize financial markets? An investigation surrounding the COVID-19 pandemic (2023)

0 of 43 cited works are in the corpus; resolved via arXiv source bundles, Semantic Scholar and OpenAlex. Corpus-wide: 2518 linked papers.