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Jacobs Levy Markowitz Simulator


Copyright 2004, Institutional Investor Journals.
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Copyright 2010, CFA Institute. Reproduced and republished from Financial Analysts Journal with permission from CFA Institute. All rights reserved.
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Financial Market Simulation
by Bruce I. Jacobs, Kenneth N. Levy, and Harry M. Markowitz, The Journal of Portfolio Management, 30th Anniversary Issue, September 2004

Simulating Security Markets in Dynamic and Equilibrium Modes
by Bruce I. Jacobs, Kenneth N. Levy, and Harry M. Markowitz, Financial Analysts Journal, September/October 2010


Scientists often turn to asynchronous-time simulation models when they want to see how complex systems work. Such simulation models allow the underlying dynamic process to reflect events that unfold in an irregular fashion. While rarely used in finance today, such models may turn out to be valuable tools for understanding markets.

The Jacobs Levy Markowitz Simulator (JLMSim) is an asynchronous, discrete-event, stock market simulator that allows users to create a model of the market, using their own inputs. Users can vary the numbers of investors, traders, portfolio analysts, and securities, as well as the investing and trading decision rules. Such a simulation may be able to provide a more realistic picture of complex markets.

The simulator can be run in two modes, a Dynamic Analysis (DA) mode and a Capital Market Equilibrium (CME) mode. In the DA mode, the simulator can be run to examine the effects on security prices of changes in investment strategies, leverage, and regulatory regimes. In the CME mode, the simulator can be run to arrive at equilibrium expected returns, given a variety of financial markets.


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