Detail práce

Prospect Theory and Inertia in a Heterogeneous Agent Model

Autor: Bc. Jan Polách
Rok: 2015 - letní
Vedoucí: PhDr. Jiří Kukačka Ph.D.
Typ práce: Bakalářská
Jazyk: Anglicky
Stránky: 97
Abstrakt: Using the Heterogeneous Agent Model framework, we develop and incorporate
an extension based on Prospect Theory into a popular agent-based asset pricing
model. The extension covers the phenomenon of loss aversion manifested
mainly in risk aversion and asymmetric treatment of gains and losses. Additionally,
we explore a special case of the model’s intrinsic dynamics termed
Asynchronous Updating that affects agents’ selection of trading strategies and
mimics the investor inertia effect. Using Monte Carlo methods, we investigate
behavior and statistical properties of the extended versions of the model and
assess relevance of the extensions with respect to empirical data and stylized
facts of financial time series. We find that the Prospect Theory extension is feasible,
that it keeps the essential underlying mechanics of the model intact, and
that it changes the model’s dynamics considerably. Moreover, the extension
shifts the model closer to the behavior of real-world stock markets. Contrarily,
the Asynchronous Updating feature does not produce statistically different
empirical distributions of most of the main variables. However, it dramatically
increases chances of fundamentalists to survive in the market even when
changes to more profitable strategies are increasingly facile.




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