Endogenous Formation of Limit Order Books: Dynamics Between Trades

Understand

In this work, we present a continuous-time large-population game for modeling market microstructure betweentwo consecutive trades.

• The proposed modeling framework is inspired by our previous work [23].
• In this framework, the Limit Order Book (LOB) arises as an outcome of an equilibrium between multiple agents who have different beliefs about the future demand for the asset.
• The agents' beliefs may change according to the information they observe, triggering changes in their behavior.