Bounded Rational Speculative and Hedging Interaction Model in Oil and US Dollar Markets
Bounded Rational Speculative and Hedging Interaction Model in Oil and US Dollar Markets
Author(s): Carfì David, Michael CampbellSubject(s): Business Economy / Management, Accounting - Business Administration
Published by: ASERS Publishing
Keywords: Airlines; Cross-hedging; Currency Markets; Financial Risk; FinancialTransaction Taxes; GameTheory; Hedging; Speculation; Potential Games; Bounded Rationality; Logit Equilibrium; Gibbs Equilibrium;
Summary/Abstract: A 'bounded rational' overlay is constructed for a model of an interaction between two players who speculate on oil and the U.S. dollar, subject to financial transaction taxes. This model also has two types of operators: a real economic subject (Air) and an investment bank (Bank). Many investment operators (banks) are also considered. Their behavior equilibrates much more quickly, as they react to the move of Air. In this sense, Air is an acting external agent (such as with an external magnetic field in a magnetic system), whereas the random component of the bounded rational behavior of banks is 'annealed' (i.e., averaged out before Air makes its next transaction). Under certain conditions for the model, the equilibrium measure for the bank agents, after Air has played its strategy, is a Gibbs measure from statistical mechanics, as the interactions between opera- tors are that for a potential game.
Journal: Journal of Mathematical Economics and Finance
- Issue Year: I/2015
- Issue No: 1(1)
- Page Range: 4-28
- Page Count: 25
- Language: English
- Content File-PDF
