Optimal trading in a limit order book using linear strategies
نویسنده
چکیده
We numerically determine the equilibrium trading strategies in a Continuous Double Auction (CDA). We consider heterogeneous and liquidity motivated agents, with private values and costs, that trade sequentially in random order under time constraints and are not aware of the type of the other agents in their session. We assume that they submit limit orders using a simple linear function of the current best quotes (ask and bid). In equilibrium, found using an Evolution Strategies algorithm, impatient agents do not always submit market orders, as in other models of CDAs, and agents take into account both sides of the book in their optimal decision. Finally, we provide a description of the price and of the \small" set of states of the equilibrium book.
منابع مشابه
Optimal Trading in a Two-Sided Limit Order Book
This paper studies four trading algorithms of a professional trader, in a realistic two-sided limit order book whose dynamics are driven by the order book events. The identity of the trader can be either privileged or regular, either a hedge fund or a brokery agency. The speed and cost of trading can be balanced by properly choosing active strategies on the displayed orders in the book and pass...
متن کاملOptimal Trade Execution and Absence of Price Manipulations in Limit Order Book Models
We analyze the existence of price manipulation and optimal trade execution strategies in a model for an electronic limit order book with nonlinear price impact and exponential resilience. Our main results show that, under general conditions on the shape function of the limit order book, placing deterministic trade sizes at trading dates that are homogeneously spaced is optimal within a large cl...
متن کاملAlgorithmic Trading with Markov Chains
An order book consists of a list of all buy and sell offers, represented by price and quantity, available to a market agent. The order book changes rapidly, within fractions of a second, due to new orders being entered into the book. The volume at a certain price level may increase due to limit orders, i.e. orders to buy or sell placed at the end of the queue, or decrease because of market orde...
متن کاملLimit Order Book as a Market for Liquidity1
Limit Order Book as a Market for Liquidity We develop a dynamic model of an order-driven market populated by discretionary liquidity traders. These traders differ by their impatience and seek to minimize their trading costs by optimally choosing between market and limit orders. We characterize the equilibrium order placement strategies and the waiting times for limit orders. In equilibrium less...
متن کاملOptimal trading strategies with limit orders
A model is proposed to study optimal trading strategies in a limit order book, as typically arise when a trader has a block of shares to liquidate and she submits limit orders. The execution of limit orders is uncertain, which leads to a stochastic control problem. In contrast to previous literature, we allow the trader to choose both the quotes and the sizes of her submitted orders. Great atte...
متن کامل