Time-dependent trading strategies in a continuous double auction

Abstract

We model a continuous double auction with heterogenous agents and compute approximate optimal trading strategies using evolution strategies. Agents privately know their values and costs and have a limited time to transact. We focus on equilibrium strategies that are developed taking into account the number of traders that submitted orders previously, as well as the number of who will submit subsequently. We find that it is optimal to place increasingly aggressive orders, according to a roughly linear schedule, and test the resulting equilibrium for robustness and accuracy. © Springer-Verlag Berlin Heidelberg 2011.