Infinite Horizon Nash Equilibrium Models of a Limit Order Book

Alberto Bressan () and Hongxu Wei ()
Additional contact information
Alberto Bressan: Penn State University
Hongxu Wei: Penn State University

Dynamic Games and Applications, 2025, vol. 15, issue 3, No 6, 847-871

Abstract: Abstract The paper analyzes some models of a Limit Order Book, determined as a Nash equilibrium among a large number of traders, in infinite time horizon. We study how the size and shape of the LOB are related to the expected profit rate of traders posting limit orders, and to the random distribution of incoming external buy or sell orders. Formulas are derived which show how the volatility of the stock, and the presence of better informed external agents, determine (i) an increase in the bid-ask spread and (ii) a liquidity reduction, i.e. a decrease in the total amount of stocks posted for purchase or for sale. We also analyze models including “fast” and “slow” traders, that can react more or less quickly to changes in the fundamental value of the stock.

Keywords: Limit order book; Nash equilibrium; Optimal pricing strategy; Bidding game; Infinite horizon; 49N90; 91A10; 91B26 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s13235-024-00583-6 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:dyngam:v:15:y:2025:i:3:d:10.1007_s13235-024-00583-6

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/13235

DOI: 10.1007/s13235-024-00583-6

Access Statistics for this article

Dynamic Games and Applications is currently edited by Georges Zaccour

More articles in Dynamic Games and Applications from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().