Market Trading Models

Volterra creates market trading models which allow for:

Differences between individual behaviour and tastes
Effects of one buyer or seller on another
Areas of uncertainty or ignorance
The ability to learn

These models create a virtual market within the computer which is populated by firms following simple rules of behaviour in reacting to the actions taken by other agents in the market. This ABM-based approach allows the evolution of the market in terms of price, market shares and volume of trading to be analysed through simulated time.

Volterra has applied an ABM trading model to investigate the evolution of an emissions trading market, in particular to understand how many companies need to be involved and what level of trading is required to produce a stable market.

In the model, a number of firms are each allowed to produce a certain level of pollution according to the permits they are issued. The firms make decisions based on learning rules with the overall aim of maximising profits. Firms can sell permits and produce less pollution or buy permits and increase their output of pollution. Firms use simple rules to decide buy and sell prices in the market for permits.