Price Dynamics in an Order-Driven Market with Bayesian Learning

  title={Price Dynamics in an Order-Driven Market with Bayesian Learning},
  author={Jiahua Wang and Hongliang Zhu and Dongxin Li},
In this paper, we have developed a model of limit order book with learning mechanism and investigated its price dynamics. In this model, continuous Bayesian learning is introduced to describe the dynamics of self-adjusting learning mechanism of agents, which can result in some important stylized facts of limit order markets. This study also provides some behavioral explanations for these well-known stylized facts that are commonly observed in the financial markets. 

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