Asset Management Strategies: Risk and Transaction Costs in Simulation

In recent years, there has been rising interest in a field called behavioral finance, which incorporates psychological methods in analysing investor behavior. The aim of this chapter is to study the technical and the fundamental investing strategy of financial market participants dealing with assets. The motivation of the presented research is to simulate the financial market in the form of agent-based model and to investigate various impacts of risk and transaction costs on its stability. Computational social science involves the use of agent based modeling and simulation to study complex social systems. It is related to a variety of other simulation techniques, including discrete event simulation and distributed artificial intelligence or Multi-Agent Systems (MAS). In practice, each agent has only partial knowledge of other agents and each agent makes its own decisions based on the partial knowledge about other agents in the system. For purposes of this chapter, a MAS will be implemented as a simulation framework in JADE development platform. The hypothesis was that transaction costs introduction will stabilize the financial market. The results obtained show that in the case of risk involvement into the system the hypothesis can be fulfilled only partially.