Trading Graph Neural Network

ArXiv ID: 2504.07923 “View on arXiv”

Authors: Unknown

Abstract

This paper proposes a new algorithm – Trading Graph Neural Network (TGNN) that can structurally estimate the impact of asset features, dealer features and relationship features on asset prices in trading networks. It combines the strength of the traditional simulated method of moments (SMM) and recent machine learning techniques – Graph Neural Network (GNN). It outperforms existing reduced-form methods with network centrality measures in prediction accuracy. The method can be used on networks with any structure, allowing for heterogeneity among both traders and assets.

Keywords: Trading Networks, Graph Neural Networks (GNN), Asset Pricing, Simulated Method of Moments (SMM), Market Microstructure

Complexity vs Empirical Score

• Math Complexity: 8.0/10
• Empirical Rigor: 5.0/10
• Quadrant: Holy Grail
• Why: The paper combines advanced mathematical concepts like fixed point theory, contraction mappings, and structural estimation (high math complexity), while providing simulation-based validation and discussing real-world applications (moderate empirical rigor).

  flowchart TD
    A["Research Goal"] --> B["Data Sources"]
    B --> C["Model Architecture"]
    C --> D["SMM Optimization"]
    D --> E["Prediction & Validation"]
    E --> F["Key Findings"]

    subgraph A ["Research Goal"]
        A1["Estimate impact of asset,<br>dealer, & relationship features<br>on asset prices in trading networks"]
    end

    subgraph B ["Data/Inputs"]
        B1["Trading Network Data<br>(Assets, Dealers, Relationships)"]
    end

    subgraph C ["Methodology: TGNN"]
        C1["Combine Simulated Method of Moments<br>(SMM) + Graph Neural Network (GNN)"]
    end

    subgraph D ["Computational Process"]
        D1["Structural Estimation<br>via SMM Optimization"]
    end

    subgraph E ["Validation"]
        E1["Prediction Accuracy Test<br>vs. Network Centrality Methods"]
    end

    subgraph F ["Outcomes"]
        F1["✓ Superior prediction accuracy<br>✓ Works on any network structure<br>✓ Handles trader/asset heterogeneity"]
    end