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

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  • N. Vvedenskaya
  • Y. Suhov
  • V. Belitsky
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    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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    File URL: http://arxiv.org/pdf/1201.4580
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1201.4580.

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    Date of creation: Jan 2012
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    Publication status: Published in Markov Processes and Related Fields, Vol. 19 (2013), 83--98
    Handle: RePEc:arx:papers:1201.4580

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    Web page: http://arxiv.org/

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