Dynamical Trading Mechanism in Limit Order Markets
AbstractThis 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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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1303.3133.
Date of creation: Mar 2013
Date of revision:
Publication status: Published in Algorithm. Finance 2 (2013), no. 3-4, 213-231
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Web page: http://arxiv.org/
Other versions of this item:
- Wang, Shilei, 2013. "Dynamical trading mechanisms in limit order markets," Algorithmic Finance, IOS Press, vol. 2(3-4), pages 213-231.
- C00 - Mathematical and Quantitative Methods - - General - - - General
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
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