Double auction

Wang 1993 Bulow and Klemperer 1996). However, if the auction consists of many sellers and buyers simultaneously, the result changes dramatically. Such an auction is called a double auction market. 

In a typical auction, a single seller receives bids from multiple buyers or one buyer collects offers from multiple sellers. In a double auction, both multiple sellers and buyers submit bids and offers simultaneously, similar to trading in security markets. Multiple units of different products may be auctioned off at the same time. 

A double auction closely resembles supply-and-demand interactions in physical markets. Because of this simple fact, a double auction results in a very different price level from single auctions, described above. In a single auction, the selling price may be far above the competitive level due to competition among the buyers. With many sellers and buyers, however, double auction markets tend to generate competitive outcomes. A double auction is simply an interactive form of market where both buyers and sellers are competitive. 

A technological solution to bundle trading is to provide an auction that allows buyers and sellers to trade any number of goods in any combination. For example, stock trading markets such as NYSE or Nasdaq are double auctions that clear individual assets one by one. On the other hand, investors usually hold their assets in a portfolio that consists of diverse assets, consistent with their investment objectives on the overall returns and values. Nevertheless, physical markets are unable to carry out unbundling emd rebundUng of assets offered and demanded in the market. 

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An auction is a mechanism whereby sellers and buyers come together and agree on a transaction price. Many auction mechanisms exist, each governed by a different set of rules. In this paper, we focus on the Continuous Double Auction (CDA), the most widely used auction mechanism and the one used to control all the world s major financial exchanges. The CDA enables buyers and sellers to freely and independently exchange quotes at any time. Transactions occur when a seller accepts a buyer s bid , or when a buyer accepts a seller s ask . Although it is possible for any seller to accept any buyer s bid, and vice-versa, it is in both of their interests to get the best deal possible at any point in time. Thus, transactions execute with a counter party that offers the most competitive quote. 

De Luca, M., Cliff, D. Agent-human interactions in the continuous double auction, redux using the OpEx lab-in-a-box to explore ZIP and GDX. In Filipe, J., Fred, A. (eds.) 3rd International Gonference on Agents and Artificial Intelligent (1C A ART-2011), pp. 351-358. SciTePress, Jan 2011... 

Gjerstad, S., Dickhaut, J. Price formation in double auctions. Games Econ. Behav. 22(1), 1-29 (1998)... 

Preist, C., van Tol, M. Adaptive agents in a persistent shout double auction. In 1st International Conference on Information and Computation Economies, pp. 11-18. ACM Press (1998)... 

Tesauro, G., Das, R. High-performance bidding agents for the continuous double auction. In ACM Conference on Electronic Commerce, pp. 206-209. ACM Press (2001)... 

Vytelingum, P. The structure and behaviour of the continuous double auction. Ph.D. thesis. School of Electronics and Computer Science, University of Southampton, UK (2006)... 

McAfee (1992) proposes a double auction model that explicitly considers the role of an intermediary who intervenes in the trade and keeps track of supply and demand at asked and bid prices. Like the market specialist in NYSE, the intermediary makes a profit by regulating the trade using a certain mechanism. In the following, we describe this double auction as a direct revelation mechanism. 

Milgrom and Weber (1982) describes a variant of the English Auction where the price is posted electronically. All bidders are active at price zero. The price is raised continuously, and a bidder who wishes to remain active at the current price must depress a button. When she releases the button, she is dropped out of the auction. No bidders who has dropped out can become active again. After any bidder withdraws, all remaining bidders know the price at which she drops out. When there is only one bidder left in the room, the auction ends. McAfee (1992) proposes an oral double auction work in a similar fashion, but with multiple buyers and sellers. In the following, we use the oral double auction model to characterize the basic functions of exchange coordination carried out by a market intermediary (see Figure 3.4). 

Figure 3.4- Oral Double Auction Proposed by McAfee (1992)...

Kalagnanam, J. R., Davenport, A. J., and Lee, H. S. (2000). Computational aspects of clearing continuous call double auctions with assignment constraints and indivisible demand. Technical Report IBM Research Report RC21660(97613), IBM T. J. Watson Research Center, Yorktown Heights, NY... 

McAfee, R. P. (1992). A dominant strategy double auction. J. Econom. Theory, 56(2) 434-450. 

Double auctions and Exchanges. Double auctions are settings with multiple buyers and sellers. There exist two main institutions for double auctions (i) the continuous double auction, which clears continuously, ... 

Finally, it is interesting to consider the design of double auctions and exchanges in which their are multiple buyers and multiple sellers, present simultaneously in a market. As with multiattribute auctions, the problem that immediately arises is one of the economic impossibility of efficiency with budget-balance (by Myerson-Satterthwaite), again because both the buyers and sellers have private information about their preference structure. 

Double Auctions. In a double auction there are multiple buyers and sellers, all interested in trading multiple units of the same item. The clearing and payment problem can be analyzed as follows. Assume that bids are sorted in descending order, such that B > B2 >. .. > Bn, while asks are sorted in ascending order, with Ai < A2 <. .. < The efficient trade is to accept the first I > 0 bids and asks, where I is the maximal index for... 

Table 5.2. Double auction mechanisms. The traded column indicates the number of trades executed where I is the efficient number of trades. The equil column indicates whether the mechanism implements a dominant strategy or Bayesian-Nash equilibrium (BNE).

Table 5.2 provides a summary of some of the double auction mechanisms (DAs) known in the literature. In terms of high-level properties of budget-balanced DAs, the following two characteristics are mutually-exclusive ... 

For homogeneous items, the continuous double auction maintains a queue of bids from buyers sorted in increasing order of price and a queue of offers from the sellers in decreasing order of price. Whenever the offer price is lower than the bid price the bid and ask are matched and the difference is usually kept by the market maker. This requires maintaining a sorted list of asks and bids which is of 0 N logN) where N is the number of active asks/bids. 

Mark A Satterthwaite and Steven R Williams. Bilateral trade with the sealed bid /c-double auction Existence and efficiency. Journal of Economic Theory, 48 107-133, 1989. 

R Wilson. Incentive efficiency of double auctions. Econometrica, 53 1101-1115, 1985. 

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