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Heterogeneous Agent Models in Finance

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Abstract
This chapter surveys the state-of-art of heterogeneous agent models (HAMs) in finance using a jointly theoretical and empirical analysis, combined with numerical and Monte Carlo analysis from the latest development in computational finance. It provides supporting evidence on the explanatory power of HAMs to various stylized facts and market anomalies through model calibration, estimation, and economic mechanisms analysis. It presents a unified framework in continuous time to study the impact of historical price information on price dynamics, profitability and optimality of fundamental and momentum trading. It demonstrates how HAMs can help to understand stock price co-movements and to build evolutionary CAPM. It also introduces a new HAMs perspective on house price dynamics and an integrate approach to study dynamics of limit order markets. The survey provides further insights into the complexity and efficiency of financial markets and policy implications.

Suggested Citation

  • Roberto Dieci & Xue-Zhong He, 2018. "Heterogeneous Agent Models in Finance," Research Paper Series 389, Quantitative Finance Research Centre, University of Technology, Sydney.
    • Handle: RePEc:uts:rpaper:389
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    Heterogeneity; bounded rationality; heterogeneous agent-based models; stylized facts; asset pricing; housing bubbles; limit order markets; information efficiency; comovement;
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