Optimal Trading in a Limit Order Book Using Linear Strategies
22 Pages Posted: 29 Oct 2011
Date Written: September 1, 2011
Abstract
We numerically determine the equilibrium trading strategies in a Continuous Double Auction (CDA). We consider heterogeneous and liquidity motivated agents, with private values and costs that trade sequentially in random order under time constraints and are not aware of the type of the other agents in their session. We assume that they submit limit orders using a simple linear function of the current best quotes (ask and bid). In equilibrium, found using an Evolution Strategies algorithm, impatient agents do not always submit market orders, as in other models of CDAs, and agents take into account both sides of the book in their optimal decision. Finally, we provide a description of the price and of the "small" set of states of the equilibrium book.
Keywords: continuous double auction, dynamic equilibrium, optimal trading strategies, evolution strategies
JEL Classification: D44, D82, C63, C72
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Limit Order Book as a Market for Liquidity
By Thierry Foucault, Ohad Kadan, ...
-
Limit Order Book as a Market for Liquidity
By Thierry Foucault, Ohad Kadan, ...
-
Equilibrium in a Dynamic Limit Order Market
By Ronald L. Goettler, Christine A. Parlour, ...
-
Empirical Analysis of Limit Order Markets
By Burton Hollifield, Robert A. Miller, ...
-
The 'Make or Take' Decision in an Electronic Market: Evidence on the Evolution of Liquidity
By Robert J. Bloomfield, Maureen O'hara, ...
-
A Dynamic Model of the Limit Order Book
By Ioanid Rosu
-
Econometric Models of Limit-Order Executions
By Andrew W. Lo, A. Craig Mackinlay, ...
-
Limit Orders and Volatility in a Hybrid Market: The Island Ecn
By Joel Hasbrouck and Gideon Saar
-
Limit Orders and Volatility in a Hybrid Market: The Island Ecn
By Joel Hasbrouck and Gideon Saar
-
Information and Trading on Electronic Communications Networks
By Michael J. Barclay, Terrence Hendershott, ...