Efficiency of the Price Formation Process in Presence of High Frequency Participants: a Mean Field Game analysis

Understand

This paper deals with a stochastic order-driven market model with waiting costs, for order books with heterogenous traders.

• Offer and demand of liquidity drives price formation and traders anticipate future evolutions of the order book.
• The natural framework we use is mean field game theory, a class of stochastic differential games with a continuum of anonymous players.
• Several sources of heterogeneity are considered including the mean size of orders.