A Non-Linear Model of Trading Mechanism on a Financial Market

V. Belitsky, Yu.M. Suhov, N.D. Vvedenskaya

2013, v.19, №1, 83-98


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.

Keywords: market model,Markov process,scaling,differentialequations,asymptotics


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