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House Prices as a Result of Trading Activities: A Patient Trader Model

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Abstract

We present a new modeling approach for house price movements as a consequence of the trading behavior of market agents. In our modeling approach, all agents are assumed to assign a personal threshold value to a (standardized) house and update the threshold value permanently by a continuous-time filtering procedure based on observing the quoted house prices and the resulting price movements. The traders then trade according to a threshold price strategy (try to sell if the personal threshold value is lower, try to buy if the personal threshold value is higher than the actually quoted house price). Our modeling approach and its resulting characteristics are illustrated via numerical examples that highlight certain realistic constellations between various traders.

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Notes

  1. We will in both cases use the weak form of exceeding and being below that includes equality.

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Authors and Affiliations

  1. Department of Mathematics, TU Kaiserslautern, 67653, Kaiserslautern, Germany

    Ralf Korn

  2. Institute of Applied Mathematics, Middle East Teachnical University, Ankara, Turkey

    Bilgi Yilmaz

Authors
  1. Ralf Korn
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  2. Bilgi Yilmaz
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Correspondence to Bilgi Yilmaz.

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Korn, R., Yilmaz, B. House Prices as a Result of Trading Activities: A Patient Trader Model. Comput Econ 60, 281–303 (2022). https://doi.org/10.1007/s10614-021-10149-y

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