Economy – Quantitative Finance – Trading and Market Microstructure
Scientific paper
2008-03-25
Electron. J. Probab. 14 (2009) 139-160
Economy
Quantitative Finance
Trading and Market Microstructure
AMS-LaTeX v2.0, 21 pages with 8 eps-figures, uses psfrag.sty
Scientific paper
We propose a simple model for the behaviour of longterm investors on a stock market, consisting of three particles, which represent the current price of the stock and the opinion of the buyers, respectively sellers, about the right trading price. As time evolves, both groups of traders update their opinions with respect to the current price. The update speed is controled by a parameter $\gamma$, the price process is described by a geometric Brownian motion. We consider the stability of the market in terms of the distance between the buyers' and sellers' opinion, and prove that the distance process is recurrent/transient in dependence on $\gamma$.
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