Simulating Securities Markets Operations: Some Examples, Observations, and Comments

Abstract

This paper discusses the use of simulation as a means of studying the operations of securities markets. To place simulation's role in the proper context, Section I begins with a review of public policy, research, and teaching considerations that have combined in recent years to create a growing need to improve our understanding of the operations of these markets. Following this is a brief discussion of the limitations of traditional price theory models to meet this need. Section II demonstrates the significant, yet largely untapped, potential of simulation in this regard.