The asymptotics of price and strategy in the buyer's bid double auction (Q6541995)

The article is a natural continuation of research on current topics -- existence and convergence of equilibria in the buyer's bid double auction. In a model with correlated and interdependent values/costs, the authors identify for the buyer's bid double auction the asymptotic distributions of the price and of two order statistics in the first order conditions for optimal bidding/asking, all of which are normal. More precisely, this paper establishes a central limit theorem for the market price and for the order statistics among bids/asks that are critical in a trader's decision problem. The informational environment in which the result is established allows for both correlation among the informational signals of traders and interdependence of their values/costs. Interdependence of values/costs means that a trader draws an inference from the price and the event that he trades in determining his optimal bid/ask. This inference problem has impeded the study of double auction equilibrium in all but very large markets, wherein inference and strategic behavior are simplified. The reader can find precise proofs of the basic Theorems 1--3 in the Appendix section.