A non-linear model of trading mechanism on a financial market

MaRDI QIDQ2860796zbMATH OpenFDO

Authors N. Vvedenskaya, Vladimir Belitsky, Yuri Suhov

Publication date 11 November 2013

Published in Markov Processes and Related Fields (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1201.4580

zbMATH Keywords

asymptoticsdifferential equationsmarket modelMarkov processscaling

Mathematics Subject Classification ID

Applications of continuous-time Markov processes on discrete state spaces (60J28) Trade models (91B60)

Abstract: We introduce a prototype model in an attempt to capture some aspects of market dynamics simulating a trading mechanism. The model description starts with a discrete-space, continuous-time Markov process describing arrival and movement of orders with different prices. We then perform a re-scaling procedure leading to a deterministic dynamical system controlled by non-linear ordinary differential equations (ODEs). This allows us to introduce approximations for the equilibrium distribution of the model represented by fixed points of deterministic dynamics.

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