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To snipe or not to snipe, that is the question! Transitions in sniping behaviour among competing algorithmic traders

Somayeh Kokabisaghi, Eric J Pauwels and Andre B Dorsman

Papers from arXiv.org

Abstract: In this paper we re-analyse the transition from sure to probabilistic sniping as explored in Menkveld and Zoican [14]. In that paper, the authors introduce a stylized version of a competitive game in which high frequency traders (HFTs) interact with each other and liquidity traders. The authors show that risk aversion plays an important role in the transition from sure to mixed (or probabilistic) sniping. In this paper, we re-interpret and extend these conclusions in the context of repeated games and highlight some differences in results. In particular, we identify situations in which probabilistic sniping is genuinely profitable that are qualitatively different from the ones obtained in [14]. Keywords: algorithmic trading,sniping, electronic exchange,high-frequency traders,Nash equilibrium,repeated games,bandits, subgame-perfect equilibrium,transition

Date: 2019-12
New Economics Papers: this item is included in nep-gth and nep-mst
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