Wednesday, November 6, 2019 - 14:00 in V3-201
Equilibrium in limit order markets
A talk in the Bielefeld Stochastic Afternoon series by
Umut Cetin from London School of Economics
| Abstract: |
Building upon the setting of Glosten (1994) we study equilibrium among limit order traders and multiple informed investors where the market clearance is provided by dealers. In a one-period model we establish the existence of equilibrium by solving a fixed-point problem and study the impact of model parameters on the bid-ask spread and trading costs. Even in the absence of explicit solutions, the model allows us to compute the asymptotics of trading costs. We show that the price impact follows a power or logarithmic function depending on whether the distribution of the fundamental value of the traded asset has heavy tails or not.
Joint work with Henri Waelbroeck.
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