TY - JOUR
T1 - Determining the optimal market structure using near-zero intelligence traders
AU - Li, Xinyang
AU - Krause, Andreas
PY - 2010/12
Y1 - 2010/12
N2 - We evaluate an agent-based model featuring near-zero-intelligence traders operating in a call market with a wide range of trading rules governing the determination of prices, which orders are executed as well as a range of parameters regarding market intervention by specialists and the presence of informed traders. We optimize these trading rules using a population-based incremental learning algorithm seeking to maximize the trading volume. Our results suggest markets should choose a large tick size and ensure only a small fraction of traders are informed about the order book. The effect of trading rules regarding the determination of prices, priority rules, and specialist intervention, we find to have an ambiguous effect on the outcome.
AB - We evaluate an agent-based model featuring near-zero-intelligence traders operating in a call market with a wide range of trading rules governing the determination of prices, which orders are executed as well as a range of parameters regarding market intervention by specialists and the presence of informed traders. We optimize these trading rules using a population-based incremental learning algorithm seeking to maximize the trading volume. Our results suggest markets should choose a large tick size and ensure only a small fraction of traders are informed about the order book. The effect of trading rules regarding the determination of prices, priority rules, and specialist intervention, we find to have an ambiguous effect on the outcome.
UR - http://www.scopus.com/inward/record.url?scp=78649905766&partnerID=8YFLogxK
UR - http://dx.doi.org/10.1007/s11403-010-0069-3
U2 - 10.1007/s11403-010-0069-3
DO - 10.1007/s11403-010-0069-3
M3 - Article
SN - 1860-711X
VL - 5
SP - 155
EP - 167
JO - Journal of Economic Interaction and Coordination
JF - Journal of Economic Interaction and Coordination
IS - 2
ER -