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Time-dependent trading strategies in a continuous double auction

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  • Shira Fano

    ()
    (Department of Economics, University Of Venice Cà Foscari)

  • Paolo Pellizzari

    (Department of Economics, University Of Venice Cà Foscari)

Abstract

We model a continuous double auction with heterogenous agents and compute approximate optimal trading strategies using evolution strategies. Agents privately know their values and costs and have a limited time to transact. We focus on equilibrium strategies that are developed taking into account the number of traders that submitted orders previously, as well as the number of who will submit subsequently. We find that it is optimal to place increasingly aggressive orders, according to a roughly linear schedule, and test the resulting equilibrium for robustness and accuracy.

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File URL: http://www.unive.it/media/allegato/DIP/Economia/Working_papers/Working_papers_2011/WP_DSE_fano_pellizzari_03_11.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Venice "Ca' Foscari" in its series Working Papers with number 2011_03.

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Length: 16
Date of creation: 2011
Date of revision:
Handle: RePEc:ven:wpaper:2011_03

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Keywords: Continuous double auction; equilibrium trading strategies; evolution strategies.;

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  1. Shira Fano & Marco LiCalzi & Paolo Pellizzari, 2013. "Convergence of outcomes and evolution of strategic behavior in double auctions," Journal of Evolutionary Economics, Springer, vol. 23(3), pages 513-538, July.
  2. FOUCAULT, Thierry & KADAN, Ohad & KANDEL, Eugene, 2001. "Limit order book as a market for liquidity," Les Cahiers de Recherche 728, HEC Paris.
  3. Dawid, Herbert, 1999. "On the convergence of genetic learning in a double auction market," Journal of Economic Dynamics and Control, Elsevier, vol. 23(9-10), pages 1545-1567, September.
  4. Parlour, Christine A, 1998. "Price Dynamics in Limit Order Markets," Review of Financial Studies, Society for Financial Studies, vol. 11(4), pages 789-816.
  5. Ioanid Rosu, 2009. "A Dynamic Model of the Limit Order Book," Review of Financial Studies, Society for Financial Studies, vol. 22(11), pages 4601-4641, November.
  6. Foucault, Thierry, 1999. "Order flow composition and trading costs in a dynamic limit order market1," Journal of Financial Markets, Elsevier, vol. 2(2), pages 99-134, May.
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Cited by:
  1. Hugues Bersini, 2012. "UML for ABM," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 15(1), pages 9.

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