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SUMMARY:A Markov model of a limit order book: thresholds\, recurrence\, an
 d trading strategies - Frank Kelly (University of Cambridge)
DTSTART:20150609T130000Z
DTEND:20150609T140000Z
UID:TALK59717@talks.cam.ac.uk
CONTACT:Felix Fischer
DESCRIPTION:In this talk we introduce an analytically tractable model of a
  limit order book where the dynamics are driven by stochastic fluctuations
  between supply and demand. The model has a natural interpretation for a h
 ighly traded market on short time-scales where there is a separation betwe
 en the time-scale of trading\, represented in the model\, and a longer tim
 e-scale on which fundamentals change.\n\nWe describe our main result for t
 he model\, which is the existence of an explicit limiting distribution for
  the highest bid\, and for the lowest ask\, where the limiting distributio
 ns are confined between two thresholds. Fluid limits play an important rol
 e in establishing the recurrence properties of the model.\n\nWe use our mo
 del to analyze various high-frequency trading strategies (for example mark
 et-making\, sniping and mixtures of these)\, and comment on the Nash equil
 ibria that emerge between high-frequency traders when a market in continuo
 us time is replaced by frequent batch auctions.\n\nThis is joint work with
  Elena Yudovina\, University of Minnesota.\n\nhttp://www.statslab.cam.ac.u
 k/~frank/TALKS/lob.html
LOCATION:MR12\, Centre for Mathematical Sciences\, Wilberforce Road\, Camb
 ridge
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