Dynamical trading mechanisms in limit order markets

DOI10.3233/AF-13027MaRDI QIDQ5420719zbMATH OpenOpenAlexFDO

Authors Shilei Wang

Publication date 13 June 2014

Published in Algorithmic Finance (Search for Journal in Brave)

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

Mathematics Subject Classification ID

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

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.

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Cited in

(11)

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

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