A Queuing Model for a Continuous Double-Auction Trading System

8 Pages Posted: 24 Aug 2009 Last revised: 10 Nov 2009

See all articles by Shiwei Zuo

Shiwei Zuo

Japan Dragon Network Co., Ltd.

Meng Li

University of Tsukuba - Graduate School of Systems and Information Engineering

Kazuo Kishimoto

University of Tsukuba - Graduate School of Systems and Information Engineering

Misao Endo

Central Research Institute of Electric Power Industry (CRIEPI)

Date Written: August 24, 2009

Abstract

We implemented a newly adapted queuing model to analyze a continuous double-auction trading system. In the trading system, traders have to decide if they want to get a good price or if they want a quick transaction. If we can calculate the execution probability, it will help with this decision. The execution probability depends on the temporal market situation as a whole, and the liquidity of stock names. Given the complexity of the system, we had to make assumptions in order to simplify the system so that we could analyze it in a mathematical and comprehensible manner. By applying the queuing theory, we could calculate execution probabilities as a function of average order arrival rates and the initial number of bids (or asks) in the waiting queue.

Keywords: Market microstructure, Continuous double-auction trading system, Execution probability, Queue

Suggested Citation

Zuo, Shiwei and Li, Meng and Kishimoto, Kazuo and Endo, Misao, A Queuing Model for a Continuous Double-Auction Trading System (August 24, 2009). 22nd Australasian Finance and Banking Conference 2009. Available at SSRN: https://ssrn.com/abstract=1456762 or http://dx.doi.org/10.2139/ssrn.1456762

Shiwei Zuo

Japan Dragon Network Co., Ltd. ( email )

Tokyo
Japan

Meng Li

University of Tsukuba - Graduate School of Systems and Information Engineering

1-1-1 Tennodai
Tsukuba
Ibaraki, 305-8573
Japan

Kazuo Kishimoto

University of Tsukuba - Graduate School of Systems and Information Engineering ( email )

Ibaraki, 305-8573
Japan

Misao Endo (Contact Author)

Central Research Institute of Electric Power Industry (CRIEPI) ( email )

Tokyo
Japan

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