Optimal posting price of limit orders: learning by trading
AbstractConsidering that a trader or a trading algorithm interacting with markets during continuous auctions can be modeled by an iterating procedure adjusting the price at which he posts orders at a given rhythm, this paper proposes a procedure minimizing his costs. We prove the a.s. convergence of the algorithm under assumptions on the cost function and give some practical criteria on model parameters to ensure that the conditions to use the algorithm are fulfilled (using notably the co-monotony principle). We illustrate our results with numerical experiments on both simulated data and using a financial market dataset.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1112.2397.
Date of creation: Dec 2011
Date of revision: Sep 2012
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CEPR Discussion Papers, C.E.P.R. Discussion Papers
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