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Discriminatory Limit Order Books, Uniform Price Clearing and Optimality

In: Advances In Quantitative Analysis Of Finance And Accounting Essays in Microstructure in Honor of David K Whitcomb

Author

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  • Lawrence R. Glosten

    (Columbia Business School, USA)

Abstract

The paper provides new results on the optimality of a centralized limit order book. In an environment in which traders optimally choose their trade quantity in response to the terms of trade they face, the analysis shows that a centralized limit order book is optimal in the following sense: the equilibrium in a limit order book corresponds to the welfare optimum for some set of welfare weights. The paper also provides a new analysis of a uniform price limit order book with endogenous trade.

Suggested Citation

  • Lawrence R. Glosten, 2006. "Discriminatory Limit Order Books, Uniform Price Clearing and Optimality," World Scientific Book Chapters, in: Ivan E Brick & Tavy Ronen & Cheng-Few Lee (ed.), Advances In Quantitative Analysis Of Finance And Accounting Essays in Microstructure in Honor of David K Whitcomb, chapter 1, pages 3-17, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812707291_0001
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