Optimal posting distance of limit orders: a stochastic algorithm approach

Details Optimal posting distance of limit orders: a stochastic algorithm approach Optimal posting distance of limit orders: a stochastic algorithm approach

2011-12-11

arxiv.org/abs/1112.2397v1

Economy

Quantitative Finance

Trading and Market Microstructure

Scientific paper

This paper presents a stochastic recursive procedure under constraints to find the optimal distance at which an agent must post his order to minimize his execution cost. We prove the $a.s.$ convergence of the algorithm under assumptions on the cost function and give some practical criteria on model parameters to ensure that the conditions to use the algorithm are fulfilled (using notably principle of opposite monotony). We illustrate our results with numerical experiments on simulated data but also by using a financial market dataset.

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