A non-linear model of trading mechanism on a financial market

N. Vvedenskaya; Y. Suhov; V. Belitsky

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arXiv · 1201.4580

A non-linear model of trading mechanism on a financial market

N. Vvedenskaya·Y. Suhov·V. Belitsky

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Abstract

We introduce a prototype model in an attempt to capture some aspects of market dynamics simulating a trading mechanism. The model description starts with a discrete-space, continuous-time Markov process describing arrival and movement of orders with different prices. We then perform a re-scaling procedure leading to a deterministic dynamical system controlled by non-linear ordinary differential equations (ODEs). This allows us to introduce approximations for the equilibrium distribution of the model represented by fixed points of deterministic dynamics.

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N. Vvedenskaya, Y. Suhov, V. Belitsky. 2012-01-22. A non-linear model of trading mechanism on a financial market. https://arxiv.org/abs/1201.4580

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