Modeling Limit Order Book via Mean Field Games

Sergey Nadtochiy
University of Michigan

The goal of this talk is to present a modeling framework in which the shape and dynamics of a Limit Order Book (LOB) arise endogenously from an equilibrium between multiple market participants. I will start by reviewing the various models LOB and will mention some real-world phenomena that illustrate the need for a different approach. I will then present the new framework, which, on the one hand, captures very closely the micro-level interaction between individual agents and, on the other hand, uses Mean Field Games to obtain a macro-level description of the LOB itself. Using a single period model, I will present the main ideas of this framework and will, then, proceed to the dynamic version of the model.

Back to Workshop II: The Mathematics of High Frequency Financial Markets: Limit Order Books, Frictions, Optimal Execution and Program Trading