Managing Risks in Financial Markets: A Market Simulation Approach

Abstract

Globalization has caught up with both developed and emerging financial markets. Significant technological advancements have been made to keep with the expansion of financial markets. Trading mechanisms and platforms have been upgraded with the use of technology, but the inherent risks and its impact on the markets are still not completely understood. This paper emphasizes on the increasing use of technology in financial markets and identifies the potential risks accompanied with its usage. It also proposes a design for a market simulator and suggests the requirements a market simulator should have in order to accommodate the richness and complexity in the structure of financial markets. Finally, the mechanisms to observe how effectively the simulation works are discussed.