Strategic trader with full information: efficient but unfair market

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Abstract

1. Introduction

   1.1 Periodic auction and continuous limit order book

   1.2 Comparison and main flaws of limit order book

   1.3 Optimal policies to cure auction’s inefficiencies and related works

2. Auctions market modeling with transaction fees and randomization

   2.1 The market characteristics

   2.2 Clearing Price rule

   2.3 Strategic Trader’s optimization and market quality

   2.4 Data and numerical analysis

   2.5 Strategic trader with full information: efficient but unfair market

   2.6 Imperfect information and inefficiency of auctions

3. Monitoring policies: transaction fees and clearing time randomization

   3.1 Bilevel optimization between the exchange and the strategic trader

   3.2 Randomization without fees

   3.3 Optimal transaction fees indexed on time to improve price impact for the trader

   3.4 Optimal transaction fees indexed on time: improving market quality while benefiting from the fees

4. Conclusions

A. Appendix: Numerical Methods

A.1 Problem of a Strategic Seller

A.2 Appendix: Problem of the Regulator

B Appendix: Illustrate Remark 2.4

References

[4] Suppose the efficient price is $5 per share and the market price is $4 share, then arbitragers would buy at $4 to sell later at $5. As they buy, they would push the market price upward until it reaches $5 at which arbitragers stop buying thus stop moving the market price.