A limit order book model for latency arbitrage

Details A limit order book model for latency arbitrage A limit order book model for latency arbitrage

2011-10-21

arxiv.org/abs/1110.4811v1

Economy

Quantitative Finance

Trading and Market Microstructure

Scientific paper

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 free profits, but that these profits cannot be scaled. We derive the fast trader's optimal behaviour when she has only distributional knowledge of the slow trader's actions, with few restrictions on the possible prior distributions. We also consider the slower trader's response to the presence of a fast trader in a market, and the effects of the introduction of a `Tobin tax' on financial transactions. We show that such a tax can lead to the elimination of profits from front-running strategies. Consequently, a Tobin tax can both increase market efficiency and attract traders to a market.

Affiliated with

Also associated with

No associations

Rating

A limit order book model for latency arbitrage does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with A limit order book model for latency arbitrage, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and A limit order book model for latency arbitrage will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-85486