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Market Microstructure and Price Discovery
Centre of Mathematics for Applications, Department of Mathematics, University of Oslo, Oslo, Norway
Centre of Mathematics for Applications, Department of Mathematics, University of Oslo, Oslo, Norway; Department of Functional Analysis, Mechanical and Mathematical Faculty, Belarusian State University, Minsk, Belarus
Centre of Mathematics for Applications, Department of Mathematics, University of Oslo, Oslo, Norway
- 1 Centre of Mathematics for Applications, Department of Mathematics, University of Oslo, Oslo, Norway
- 2 Centre of Mathematics for Applications, Department of Mathematics, University of Oslo, Oslo, Norway; Department of Functional Analysis, Mechanical and Mathematical Faculty, Belarusian State University, Minsk, Belarus
- 3 Centre of Mathematics for Applications, Department of Mathematics, University of Oslo, Oslo, Norway
Journal of Mathematical Finance·Volume 03 (2013)·Pages 1–9·Published 26 February 2013·DOI10.4236/jmf.2013.31001
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Abstract
The design of this study is to investigate the evolution of a stochastic price process consequent to discrete processes of bids and offers in a market microstructure setting. Under a set of flexible assumptions about agent preferences, we generate a price process to compare with observation. Specifically, we allow for both rational and irrational economic behavior, abstracting the inquiry from classical studies relying on utility theory. The goal is to provide a set of economic primitives which point inexorably to the price processes we see, rather than to assume such process from the start.
KeywordsPrice Theory and Market MicrostructureStochastic Difference EquationsBidAskPrice Processes in Discrete Time
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