Author(s)

Haoyue Deng, Xinmeng Li, Jiayu Tang

Corresponding Author

Haoyue Deng

ABSTRACT

This article presents a model to represent the economy process of a global financial market which based on a digital currency (currency G) to optimize the strategy of constructing. In model preparation, we develop an index system to classify countries by their economy size and economy openness with the help of K-means, as the former one determines different type of relation between the growth of financial market and the development of economy, and the latter one is a vital indicator for a country’s attitude towards global financial activities which can be inferred as their attitude to G. In model construction, we first derive parameters to determine how well G performs when serving as a global currency with the assumption adopted from Mundell-Fleming model. Then, by adopting Behavior Finance Theory, we develop an individual model using prospect theory to predict how G’s features will influence people’s decisions and a national model based on Endogenous Transaction Model to examine the relation between their legal trader and G. Finally, by building the VAR models with variables mentioned above, we merge our models into a fully integrated conformity with the same optimization target to facilitate the market’s viability and utilize genetic algorithm to estimate it. In model analysis, we summarize the long-term effect of this market.

KEYWORDS

Digital Currency, Global Financial Market, K-means