Related papers: On Market Design and Latency Arbitrage

We consider a single security market based on a limit order book and two investors, with different speeds of trade execution. If the fast investor can front-run the slower investor, we show that this allows the fast trader to obtain risk…

This paper studies optimal market making for large-tick assets in the presence of latency. We consider a random walk model for the asset price, and formulate the market maker's optimization problem using Markov Decision Processes (MDP). We…

We study the optimal order placement strategy with the presence of a liquidity cost. In this problem, a stock trader wishes to clear her large inventory by a predetermined time horizon $T$. A trader uses both limit and market orders, and a…

Latency (i.e., time delay) in electronic markets affects the efficacy of liquidity taking strategies. During the time liquidity takers process information and send marketable limit orders (MLOs) to the exchange, the limit order book (LOB)…

The possibility of latency arbitrage in financial markets has led to the deployment of high-speed communication links between distant financial centers. These links are noisy and so there is a need for coding. In this paper, we develop a…

We consider a broker who has to place a large order which consumes a sizable part of average daily trading volume. The broker's aim is thus to minimize execution costs he incurs from the adverse impact of his trades on market prices. By…

There is a pervasive assumption that low latency access to an exchange is a key factor in the profitability of many high-frequency trading strategies. This belief is evidenced by the "arms race" undertaken by certain financial firms to…

Market participants regularly send bid and ask quotes to exchange-operated limit order books. This creates an optimization challenge where their potential profit is determined by their quoted price and how often their orders are…

We use a recent, high-quality data set from Nasdaq to perform an empirical analysis of order flow in a limit order book (LOB) before and after the arrival of a market order. For each of the stocks that we study, we identify a sequence of…

We study equilibrium investment into bidding and latency reduction for different sequencing policies. For a batch auction design, we observe that bidders shade bids according to the likelihood that competing bidders land in the current…

In financial applications, latency advantages -- the ability to make decisions later than others, even without the ability to see what others have done -- can provide individual participants with an edge by allowing them to gather…

Order matching systems form the backbone of modern equity exchanges, used by millions of investors daily. Thus, their operation is strictly controlled through numerous regulatory directives to ensure that markets are fair and transparent.…

We study the optimal execution of market and limit orders with permanent and temporary price impacts as well as uncertainty in the filling of limit orders. Our continuous-time model incorporates a trade speed limiter and a trader director…

This short note provides a systematic construction of market models without unbounded profits but with arbitrage opportunities.

It has been assumed that arbitrage profits are not possible in efficient markets, because future prices are not predictable. Here we show that predictability alone is not a sufficient measure of market efficiency. We instead propose to…

This paper is split in three parts: first we use labelled trade data to exhibit how market participants accept or not transactions via limit orders as a function of liquidity imbalance; then we develop a theoretical stochastic control…

While historically, economists have been primarily occupied with analyzing the behaviour of the markets, electronic trading gave rise to a new class of unprecedented problems associated with market fairness, transparency and manipulation.…

A blockchain replaces central counterparties with time-consuming consensus protocols to record the transfer of ownership. This settlement latency slows cross-exchange trading, exposing arbitrageurs to price risk. Off-chain settlement,…

Optimal execution, i.e., the determination of the most cost-effective way to trade volumes in continuous trading sessions, has been a topic of interest in the equity trading world for years. Electricity intraday trading slowly follows this…

Flaws of a continuous limit order book mechanism raise the question of whether a continuous trading session and a periodic auction session would bring better efficiency. This paper wants to go further in designing a periodic auction when…