Strategic updating of threshold response in an agent-based market model.
Résumé
We propose an agent-based model of a single-asset financial market described in terms of few parameters. We show that the effect of agents adjusting their threshold response to new information is to generate a market price which fluctuates endlessly and a volatility which displays a mean-reverting behavior: the volatility goes neither to zero nor to infinity in the long-run. Our agent-based model generically leads to absence of autocorrelation in returns, excess volatility, volatility clustering and endogeneous bursts of activity non-attributable to external noise. This study illustrates a possible link between the famous El Farol bar problem and financial markets.