Simulating Illiquid Markets: Insights from Fractional Ownership Trading and Agent-Based Models

This research investigates liquidity dynamics in fractional ownership markets, focusing on illiquid alternative investments traded on a FinTech platform. By leveraging empirical data and employing agent-based modeling (ABM), the study simulates trading behaviors in sell offer-driven systems, offering insights into the mechanisms that influence liquidity in these markets. The ABM-based simulation model provides a data augmentation environment which allows for the exploration of diverse trading architectures and rules, offering an alternative to direct experimentation. This approach bridges academic theory and practical application, supported by collaboration with industry and Swiss federal funding. The paper lays the foundation for extensions, including the identification of a liquidity-maximizing trading environment and the design of a market maker, by simulating modifications to the current design of the investment platform using an ABM specified with empirical data<sup xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">1</sup><sup xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">1</sup>An extended version of this research paper including additional results and supplementary material can be found on arXiv (DOI: arXiv: 2411.13381v2).