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Adding to the Regulator's Toolbox: Integration and Extension of Two Leading Market Models
March 2011
Brian F. Tivnan, The MITRE Corporation
Matthew T. K. Koehler, The MITRE Corporation
Matthew McMahon, The MITRE Corporation
Matthew Olson, The MITRE Corporation
Neal J. Rothleder, The MITRE Corporation
Rajani R. Shenoy, The MITRE Corporation
ABSTRACT
As demonstrated during the recent financial crisis, regulators require additional analytical tools to assess systemic risk in the financial sector. This paper describes one such tool; namely a novel market modeling and analysis capability. Our model builds upon two leading market models: one which emphasizes market micro-structure and another which emphasizes an ecology of trading strategies. We address a limitation of market modeling, namely the consideration of only one dominant trading strategy (i.e., long positions). Our model aligns closely with several widely held stylized facts of financial markets. And a final contribution of this work stems from our empirical analysis of the fractal nature of both empirical markets and our market model.
Additional Search Keywords
Market, model, stylized facts
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