Dynamical trading mechanisms in limit order markets

DOI10.3233/AF-13027zbMATH Open1290.91200arXiv1303.3133OpenAlexW3125776943MaRDI QIDQ5420719FDOQ5420719

Authors: Shilei Wang 

Publication date: 13 June 2014

Published in: Algorithmic Finance (Search for Journal in Brave)

Abstract: This work's purpose is to understand the dynamics of limit order books in order-driven markets. We try to illustrate a dynamical trading mechanism attached to the microstructure of limit order markets. We capture the iterative nature of trading processes, which is critical in the dynamics of bid-ask pairs and the switching laws between different traders' types and their orders. In general, after introducing the atomic trading scheme, we study a general iterated trading process in both combinatorial and stochastic ways, and state a few results on the stability of a dynamical trading system. We also study the controlled dynamics of the spread and the mid-price in an iterated trading system, when their movements, generated from the dynamics of bid-ask pairs, are assumed to be restricted within some extremely small ranges.

Full work available at URL: https://arxiv.org/abs/1303.3133

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Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Actuarial science and mathematical finance (91G99)

Cited In (11)

• HYDRODYNAMIC LIMIT OF ORDER-BOOK DYNAMICS
• The self-financing equation in limit order book markets
• Trading strategies, feedback control and market dynamics
• Limits of semistatic trading strategies
• A non-linear model of trading mechanism on a financial market
• Combination trading with limit orders
• Online Learning in Limit Order Book Trade Execution
• Price dynamics in a Markovian limit order market
• Time-trend free run orders with the minimum level changes
• The impact of heterogeneous trading rules on the limit order book and order flows
• Empirical Analysis of Limit Order Markets

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