ZI-Trading Model Updated
01/10/07 13:40 Filed in: ACE
Models
The ZI-trading model has been changed to reflect the
market mechanism used by Gode & Sunder (1993). The original
version of the model posted in the summer of 2006 worked by
randomly matching a buyer and seller each tick of the clock. The
buyer and seller randomly formed their respective bid and ask with
a positive profit constraint (ZI-C). If the bid and asked cross,
the transaction price was randomly set between the bid and ask. Now
the model uses the simple order book described on pages 121-122 of
Gode and Sunder (1993).
The ZI-trading NetLogo model has been updated to reflect
the market mechanism used in the Gode & Sunder (1993) paper.
The original version of the model posted in the summer of 2006
worked by randomly matching a buyer and seller each tick of the
clock. The buyer and seller randomly formed their respective bid
and ask with a positive profit constraint (ZI-C). If the bid and
asked cross, the transaction price was randomly set between the bid
and ask.
Now the model uses the simple order book described on pages 121-122 of Gode and Sunder (1993). Now at each tick of the clock, a random buyer or seller is selected. The trader randomly forms their bid or ask and then compares it to the order book. For example, if a buyer is selected the buyer randomly forms their bid. If the bid is higher than the current best ask on the book, the buyer trades with the seller who posted the current best ask. If the bid is below the current best ask, the bid either replaces the current best bid if higher than the current best bid or the bid is ignored if below the current best bid. If a trade did occur, both the buyer and seller are removed from the list of available traders (they only trade one unit) and the order book is reset to empty. A analogous process is used if the selected trader is a seller.
A switch was also added to the model to allow the user to select between zero-intelligence constrained and unconstrained traders. The constrained traders (ZI-C) cannot post a bid higher than their buyer value nor ask lower than their cost; thus forcing positive profits. An unconstrained buyer or seller (ZI-U) can post an bid or ask anywhere between 1 and the maximum buyer value or seller cost.
Now the model uses the simple order book described on pages 121-122 of Gode and Sunder (1993). Now at each tick of the clock, a random buyer or seller is selected. The trader randomly forms their bid or ask and then compares it to the order book. For example, if a buyer is selected the buyer randomly forms their bid. If the bid is higher than the current best ask on the book, the buyer trades with the seller who posted the current best ask. If the bid is below the current best ask, the bid either replaces the current best bid if higher than the current best bid or the bid is ignored if below the current best bid. If a trade did occur, both the buyer and seller are removed from the list of available traders (they only trade one unit) and the order book is reset to empty. A analogous process is used if the selected trader is a seller.
A switch was also added to the model to allow the user to select between zero-intelligence constrained and unconstrained traders. The constrained traders (ZI-C) cannot post a bid higher than their buyer value nor ask lower than their cost; thus forcing positive profits. An unconstrained buyer or seller (ZI-U) can post an bid or ask anywhere between 1 and the maximum buyer value or seller cost.