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http://ssrn.com/abstract=2046199
 
 

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A Multiscale Model of High-Frequency Trading


Richard Sowers


University of Illinois at Urbana-Champaign - Department of Mathematics

Andrei A. Kirilenko


Brevan Howard Centre for Financial Analysis, Imperial College Business School

Xiangqian Meng


University of Illinois at Urbana-Champaign

April 25, 2012

Algorithmic Finance (2013), 2:1, 59-98

Abstract:     
We propose and study a stylization of high frequency trading (HFT). Our interest is an order book which consists of orders from slow liquidity traders and orders from high-frequency traders.We would like to frame a model which is amenable to the (seemingly natural) mathematical toolkit of separation of scales and which can be used to address some of the larger issues involved in HFT.

The main issue to which we address our model is volatility. An important question is how volatility is affected by HFT. In our stylized model, we show how HFT increases volatility, and can quantify this effect as a function of the parameters in our model and the separation of scales.

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Date posted: April 26, 2012  

Suggested Citation

Sowers, Richard and Kirilenko, Andrei A. and Meng, Xiangqian, A Multiscale Model of High-Frequency Trading (April 25, 2012). Algorithmic Finance (2013), 2:1, 59-98. Available at SSRN: http://ssrn.com/abstract=2046199 or http://dx.doi.org/10.2139/ssrn.2046199

Contact Information

Richard Sowers (Contact Author)
University of Illinois at Urbana-Champaign - Department of Mathematics ( email )
1409 W. Green St.
Urbana, IL 61801
United States
HOME PAGE: http://www.math.uiuc.edu/~r-sowers/
Andrei A. Kirilenko
Brevan Howard Centre for Financial Analysis, Imperial College Business School ( email )
South Kensington Campus
Exhibition Road
London SW7 2AZ, DC SW7 2AZ
United Kingdom
Xiangqian Meng
University of Illinois at Urbana-Champaign ( email )
601 E John St
Champaign, IL 61820
United States
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