Construction of the Spread Dealer Model and its Application

Author

Matsunaga, Kenta and Yamada, Kenta and Takayasu, Hideki and Takayasu, Misako

Abstract

The dealer model is an agent based model that simulates the simplified dealer's behavior and satisfies various empirical laws of the foreign exchange markets by tuning major three parameters. In this study,we improve the dealer model to satisfy a newly established empirical law about widening of spread as a response to big market price changes. As a result when a big news occurs and the market becomes turbulent, this new model can reproduce broadening of distribution of price change.In a peculiar price change of official intervention in the foreign exchange market by Bank of Japan, this model can be used for estimation of strategies of intervention and responses of the market.