Dynamical Trading Mechanism in Limit Order Markets

Shilei Wang

Papers from arXiv.org

Abstract: This 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.

Date: 2013-03
New Economics Papers: this item is included in nep-cwa and nep-mst
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Published in Algorithm. Finance 2 (2013), no. 3-4, 213-231

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Journal Article: Dynamical trading mechanisms in limit order markets (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1303.3133

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