Financial Market Simulation

Abstract

When they want to see how complex systems work, scientists often turn to asynchronous-time simulation models, which allow processes to change sporadically over time, typically at irregular intervals. While rarely used in finance today, such models may turn out to be valuable tools for understanding how markets respond to changes in the participation rates of different types of investors, for example, or to changes in regulatory or investment policies. The asynchronous, discrete-event, stock market simulator described here allows users to create a model of the market, using their own inputs. Users can vary the numbers of investors, traders, portfolio analysts, and securities, as well as their own investing and trading decision rules. Such a simulation may be able to provide a more realistic picture of complex markets.