A Belief-driven Order Book Model
نویسنده
چکیده
As first pioneered by [19] and treated in detail in [9] one of the crucial roles of market microstructure is price revelation. Different trading systems have emerged and evolved, from auctions to limit order books and dark pools. Each of them correspond to a different way of handling the risk of adverse selection, highlighting the importance played by private beliefs in the trading process. Agents either attempt to protect their own information, or try to infer that of others. This game of cat and mouse between liquidity takers and providers, between informed and uniformed traders highlights the need for models where different beliefs compete on a given market structure. This paper focuses on the limit order book, a microstructure used in more than half the world’s exchanges.
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