We propose a parsimonious agent-based model of a financial market at the intra-day time scale that is able to jointly reproduce many of the empirically validated stylised facts. These include properties related to returns (leptokurtosis, absence of linear autocorrelation, volatility clustering),...

We investigate the effects of different regulatory policies directed towards high-frequency trading (HFT) through an agent-based model of a limit order book able to generate flash crashes as the result of the interactions between low- and high-frequency (HF) traders. We analyze the impact of the...

Market participants who capitalize on high-frequency price dynamics and rely on automated trading are responsible, along with market makers, for the observed level of market efficiency. The remaining inefficiency is usually measured as the ratio of expected P&L, derived from the price signals,...

Garbade and Silber (1979) demonstrate that an asset will be liquid if it has (1) low price volatility and (2) a large number of public investors who trade it. Although these results match nicely with common notions of liquidity, one key element is missing: liquidity also depends on (3) an asset...

We develop a High Frequency (HF) trading strategy where the HF trader uses her superior speed to process information and to post limit sell and buy orders. By introducing a multi-factor mutually-exciting process we allow for feedback effects in market buy and sell orders and the shape of the...

We propose a class of execution algorithms that consists of a strategic layer and a speculative layer. The strategic layer is an optimal trading schedule that encodes the trader's objective, her tolerance to risk, and the impact of her own trades in the market. The schedule of the strategic...

This paper proposes an optimal intraday trading strategy to absorb the shock to the stock market when an online portfolio selection algorithm rebalances a portfolio. It considers real-time data of limit order books and splits a very large market order into a number of consecutive market orders...

We present a dynamic equilibrium model to understand differences and interactions between informational and trading speed advantages. The model is a stochastic asynchronous game, with endogenous trading decisions and non-cooperation among agents, in a limit order market. We show that welfare and...

We assume that the drift in the returns of asset prices consists of an idiosyncratic component and a common component given by a co-integration factor. We analyze the optimal investment strategy for an agent who maximizes expected utility of wealth by dynamically trading in these assets. The...

We study a differential Riccati equation (DRE) with indefinite matrix coefficients, which arises in a wide class of practical problems. We show that the DRE solves an associated control problem, which is key to provide existence and uniqueness of a solution. As an application, we solve two...