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

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  • N. Vvedenskaya
  • Y. Suhov
  • V. Belitsky

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. "A non-linear model of trading mechanism on a financial market," Papers 1201.4580, arXiv.org.
    • Handle: RePEc:arx:papers:1201.4580
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    References listed on IDEAS

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    1. Rama Cont & Sasha Stoikov & Rishi Talreja, 2010. "A Stochastic Model for Order Book Dynamics," Operations Research, INFORMS, vol. 58(3), pages 549-563, June.
    2. Rama Cont & Arseniy Kukanov & Sasha Stoikov, 2010. "The Price Impact of Order Book Events," Papers 1011.6402, arXiv.org, revised Apr 2011.
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