Dresden 2011 – scientific programme

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SOE: Fachverband Physik sozio-ökonomischer Systeme

SOE 18: Financial Markets and Risk Management I

SOE 18.5: Talk

Thursday, March 17, 2011, 11:15–11:30, GÖR 226

Tobin Tax in Minority Game Market Models — •Josephine Mielke, Felix Patzelt, and Klaus Pawelzik — Institute for Theoretical Physics, Department Neurophysics, University of Bremen, Bremen, Germany

The introduction of the Tobin Tax is discussed as a financial tool to reduce speculation and short-term trading at foreign exchange (FX) markets, to reduce large fluctuations and thereby to protect national currency stability.

Minority Games serve as minimal models of financial markets. In particular, they reproduce the power-law distributed return fluctuations (stylized facts) by operating close to a phase transition.

In order to include the Tobin Tax we propose to extend a Minority Game market model to include a trading mechanism, fundamentalists and speculators ('chartists'). When chartists are endowed with limited resources and subjected to the tax we observe, that FX rate fluctuations decrease. A reduced number of speculators remain in the market exploiting the increased predictability. Fundamentalists with unlimited resources are not affected by the tax as they function as liquidity suppliers. They correspond to investment banks at real FX markets which do not participate in short-term trades. We find an intermediate tax which maximizes tax revenue and noticeably reduces market fluctuations.