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arXiv · 1303.3133

Dynamical Trading Mechanism in Limit Order Markets

Shilei Wang
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Abstract

This work's purpose is to understand the dynamics of limit order books in order-driven markets. We try to illustrate a dynamical trading mechanism attached to the microstructure of limit order markets. We capture the iterative nature of trading processes, which is critical in the dynamics of bid-ask pairs and the switching laws between different traders' types and their orders. In general, after introducing the atomic trading scheme, we study a general iterated trading process in both combinatorial and stochastic ways, and state a few results on the stability of a dynamical trading system. We also study the controlled dynamics of the spread and the mid-price in an iterated trading system, when their movements, generated from the dynamics of bid-ask pairs, are assumed to be restricted within some extremely small ranges.

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Shilei Wang. 2013-03-13. Dynamical Trading Mechanism in Limit Order Markets. https://doi.org/10.3233/af-13027

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