The self-financing equation in limit order book markets (Q1999602)

The aim of this study is to present a mathematical foundation for trading on a limit order book taking into account associated transaction costs. Authors propose continuous-time equations generalizing the self-financing relationships of frictionless markets. These equations include a price impact or adverse selection constraint. Obtained results may be applied for management of low-frequency trading. Authors discus some financial market properties which are not widely accepted. In reviewed paper, the fulfillment of these properties by the considered financial markets is strongly verified with the use of statistical tests. From mathematical point-view, all considerations are proper.