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

N. Vvedenskaya, Y. Suhov and V. Belitsky

Papers from arXiv.org

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.

Date: 2012-01
New Economics Papers: this item is included in nep-mst
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Published in Markov Processes and Related Fields, Vol. 19 (2013), 83--98

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