ROBUST MATHEMATICAL FORMULATION AND PROBABILISTIC DESCRIPTION OF AGENT-BASED COMPUTATIONAL ECONOMIC MARKET MODELS

Abstract

In science and especially in economics, agent-based modeling has become a widely used modeling approach. These models are often formulated as a large system of difference equations. In this study, we discuss two aspects, numerical modeling and the probabilistic description for two agent-based computational economic market models: the Levy–Levy–Solomon model and the Franke–Westerhoff model. We derive time-continuous formulations of both models, and in particular, we discuss the impact of the time-scaling on the model behavior for the Levy–Levy–Solomon model. For the Franke–Westerhoff model, we proof that a constraint required in the original model is not necessary for stability of the time-continuous model. It is shown that a semi-implicit discretization of the time-continuous system preserves this unconditional stability. In addition, this semi-implicit discretization can be computed at cost comparable to the original model. Furthermore, we discuss possible probabilistic descriptions of time-continuous agent-based computational economic market models. Especially, we present the potential advantages of kinetic theory in order to derive mesoscopic descriptions of agent-based models. Exemplified, we show two probabilistic descriptions of the Levy–Levy–Solomon and Franke–Westerhoff model.