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Asset allocation and multivariate position based trading

Abstract

I add a second risky asset and a risk free bond to the univariate artificial market investigated by Lux and Marchesi (Int J Theor Appl Finance 3(4):675–702, 2000), keeping track of traders aggregate positions and wealth. Asset allocation and security selection are modeled as separate decision processes, as is common practice in financial institutions. Introducing position based trading avoids inconsistencies in traders inventories resulting from the order based setup of the original model, while preserving its ability to reproduce the stylized facts of financial return series.

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Correspondence to Bernd Pape.

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Pape, B. Asset allocation and multivariate position based trading. J Econ Interac Coord 2, 163–193 (2007). https://doi.org/10.1007/s11403-007-0021-3

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Keywords

  • Asset allocation
  • Heterogeneous agents
  • Multivariate price dynamics
  • Position based trading

JEL Classification

  • C61
  • D40
  • D84
  • G11
  • G12