Survey_VanAchter_2008

Abstract

An infinite horizon model is developed in order to examine a continous limit order market listing a single secutity. Each period t = 0,1, … exactly one agent arrives that observes the limit order book (LOB) and decides to trade one share of the asset. These agents, or traders as they will be referred to from now on, are risk neutral and expected utility maximizers. Traders have two options at their disposal to trade. On the one hand, they coud post quotes and submit a limit order (LO) which does not offer certainity of execution. On the ther hand, they could submit a market order (MO) which guarantees immediate execution but at the cost of a less favorable execution price. The optimal order choice ultimately involves a trade-pff betwee the cost of delayed execution and the cost of immediacy.