An Agent-Based Computational Model for China’s Stock Market and Stock Index Futures Market

Abstract

This study presents an agent-based computational cross-market model for Chinese equity market structure, which includes both stocks and CSI 300 index futures. In this model, we design several stocks and one index futures to simulate this structure. This model allows heterogeneous investors to make investment decisions with restrictions including wealth, market trading mechanism, and risk management. Investors' demands and order submissions are endogenously determined. Our model successfully reproduces several key features of the Chinese financial markets including spot-futures basis distribution, bid-ask spread distribution, volatility clustering and long memory in absolute returns. Our model can be applied in cross-market risk control, market mechanism design and arbitrage strategies analysis.

Study on Market Stability and Price Limit of Chinese Stock Index Futures Market: An Agent-Based Modeling Perspective

“…The underlying asset of the stock index future is the stock index that is constructed based on these five stocks. The common value of each stocks common value’s calculation and the parameter settings draw on paper [ 20 ].…”

“…The capital safety ratio for futures investors, which is the wealth share for futures investment, is no more than 60%. As for arbitrageurs’ ex-ante expected profits for every futures contract—which should be enough to compensate the execution costs when trading in both two markets—we set them randomly in the range [ 10 , 20 ], which are equivalent to [50, 100] index futures’ tick sizes. Each investor’s wealth will be updated at the end of every period.…”

“…U-mart is another popular basic simulation platform to simulate cross-market transactions by using the Japan stock index J30 as the underlying asset [ 19 ]. In this paper, we adopt an agent-based computational model set based on a previous study by our academic research team [ 20 ]. It is a spot-future cross-market structure that coincides with the main characteristics of the Chinese stock market and the CSI 300 futures market.…”

Trading Behaviours Analysis in an Artificial Stock Market

“…Regarding agent-based simulations, an option market model based on the Black-Scholes formula was studied [14]. Xu et al proposed an agent-based computational model to study multiple assets with spot-futures arbitrageurs in an attempt to reproduce the statistical properties of real Chinese markets [15]. In artificial stock market, both micro level investor behavior as well as macro level stock market dynamics are research fields that are full of unresolved research questions and therefore enjoy a strong interest of scholars and practitioners alike [16,17].…”

An Artificial Stock Market Based on Soft Control Theory

“…Investment and output at the firm level are affected by individual net worth in the presence of a financial friction [10]. Xu et al studied multiple assets with spot-futures arbitrageurs in an attempt to reproduce the statistical properties of real Chinese markets [11]. Takuma Torii et al constructed a multi-asset artificial market model and investigated the effect of arbitrage trading among multiple assets on price shock transfer from one asset to the whole market [12].…”