A Study On Complexity Of Foreign Exchange Market And Artificial Foreign Exchange Market

In floating exchange rate system, the continued abnormal fluctuations in the exchange rate is the most confusing phenomenon and difficult to explain though the economic theory. We still can't explain the exchange rate formation mechanism and its inherent volatility characteristics, although many studies have made a lot of encouraging progress from the macro-model appeared in the 70's to the increasingly popular theory of the exchange rate market microstructure research in the late 90's. Correspondently, we also can not give a reasonable explanation to the linkages between the micro basic theory and the macro law for the exchange rate.A new research methodology - Computational Experiment Finance has been recently widely used on the study of the financial market with the complexity science's application in the economic and financial research. Computational Experiment Finance is a study method that the Multi-Agents Simulation technology is used to make the artificial exchange market, to simulate the financial market and find out the rule of its complex evolution. From the research results we can get, the researchers have made some progress in the artificial financial market and it shows a good prospect. We adopt the new method to research on the foreign exchange market. It will show the complexity characteristics and evolution mechanism of the foreign exchange market.There are three aspects of the research work in this paper:First, Cellular automaton model is used to research on the complex nature of existence and the mechanism of evolution, and to analyze the complexity characteristics and evolution mechanism through the point of trader's prospection. Secondly, the model of exchange rate determination based on heterogeneous traders is set up and is used to simulate the artificial foreign exchange market. The result of simulation shows the complexity characteristics and evolution mechanism of the foreign exchange market. Then, we introduce the official intervention to the exchange rate determination model, and try to find out the relationship between the stability of foreign exchange market and the official intervention. Thirdly, we combine the results of the simulation and pressure test of RMB exchange rate, and analyze the infection of official intervention to RMB. At last, we make some related policy advice.We find that the artificial foreign exchange market explores the most complexity characters of real market through it simplify the market structure and trader's reaction model. The research also shows the evolution of complexity in foreign exchange market is closely related to the action of the traders. The traders' anticipation of is the directly reason for uncertainty of exchange forecast, circumstances and unicycle of the market.The main contribution of this paper is that we use the artificial foreign exchange market to research the development pattern of the evolution of complexity in foreign exchange market and develop a new idea of exchange rate research.