The aim of this work is to analyze the behavior of trading agents in a simple stock market in which benchmarks for risk exposure (in our case an index that estimates volatility) are manipulated. The idea comes from recent events: at the beginning of February 2018, large fluctuations of the Cboe Volatility Index (VIX), whose aim is to estimate the implied volatility of S&P500 stocks, caused a flash-crash in the US stock market. Furthermore, it is emerging now that the VIX (or the “fear gauge”, as it is called) has been manipulated by a group of individuals who were trying to keep it low in order to speculate on volatility. We investigate also the role of Algorithmic Trading in a crisis situation: automatic reaction to a sudden fluctuation in the market can amplify or even trigger a crash. To build the model we use NetLogo, an open source agent-based programmable modeling environment.
The code of the simulation is included in the "netlogo" folder and can be run within the Netlogo environment. Furthermore a simulation running online can be found at: https://terna.to.it/tesineEconofisica/Manipulation%20in%20a%20Simple%20Stock%20Market.html
In the "notebooks" folder is included a brief visualization of results.
- Griffin, John M. and Shams, Amin, Manipulation in the VIX? (May 23, 2017). Available at SSRN: https://ssrn.com/abstract=2972979 or http://dx.doi.org/10.2139/ssrn.2972979
- Kirilenko, Andrei A. and Kyle, Albert S. and Samadi, Mehrdad and Tuzun, Tugkan, Automation, Intermediation and the Flash Crash (February 6, 2018). Journal of Investment Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3119363 or http://dx.doi.org/10.2139/ssrn.3119363
- P. Terna, Continuous double auction basic model (2018). Available at: http://terna.to.it/econophysics18/NetLogo_examples/CDA_basic_model.nlogo