Bidding Strategy Choice In Continuous Double Auction

With the rapid development of security market, continuous double auction (CDA) attracts increasing attentions in academic and financial circles. In CDA market, there exist multiple traders with differentiated endowments for each side of buyer and seller and meanwhile, each trader can achieve different levels of profit through changing their revenue incentive (degree of greed). Under the impacts of these factors, a trader encounters very complicated decision when choosing bidding strategy. Departing from this, this dissertation studies the traders’ bidding strategy choice by incorporating their variable revenue incentives and endowment difference. More specifically, the innovative research works are summarized as follows:(1) The strategy effect and the endowment effect are researched. On the basis of designing simulation experiment framework on k-ZI trading strategy, under market structures with different number of traders, this dissertation studies the strategy effect, the impact of the change of revenue incentive (corresponding to the value of k and bidding strategy) on the buyers, and the sellers’ transaction volumes, transaction probabilities, expected revenues, and total revenues; the results uncover that as a trader’s revenue inventive becomes stronger, her transaction volume and probability increase, expected revenue increases, but her total revenue increases first and decreases subsequently. Through investigating the endowment effect, the difference in strategy effect among traders with different endowments, the dissertation discovers that the trader with higher endowment has higher transaction volume and probability, and achieves maximal total revenue for stronger revenue incentive; thus, traders with different endowment differ significantly in optimal bidding strategy choice.(2) Traders’ bidding strategy choices are studied under revenue-risk evaluation model. Under the circumstance where traders with different endowments can change their revenue incentives, each of them always prefers lower revenue incentive; at the same time, when becoming more sensitive to the risk degree, they are prone to decline their transaction volume by lowering their revenue incentive to weaken the impact of risk. Given relatively lower sensitivity on risk, the traders with higher endowment always prefer stronger revenue incentive; however, as they become more sensitive to risk, the traders with lower endowment may prefer stronger revenue incentive. When the downside semi-variance and the variance are respectively chosen as the control objectives, the traders’ trading index and optimal bidding strategies vary remarkably; specially, for the case of semi-variance being the control objective, traders have high transaction volume and transaction probability and are apt to choose the lower revenue incentive. In addition, introducing skewness of revenue into the objective function can to some extent impact the traders’optimal bidding strategy choices as well.(3) The comparison between CDA market and call market is conducted. First, the trading index and bidding strategy in CDA is studied when only single offer is allowed for every trader, and it is shown that the trader’s average revenue and transaction probability is not affected by the restriction on the allowed number of offer. However, there is no regularity on the relationship between a trader’s revenue incentive and her endowment, which is different from the case where the trader with higher endowment always prefers higher revenue incentive if no restriction on number of offer exists. Compared with that in CDA market with signal offer is allowed, all traders in call market prefer lower revenue incentive; this result holds true when the impact of risk factors on bidding strategy choice is incorporated as well.