Real Time Trading Mechanisms for Automated Markets

The growth of electronic commerce has aroused considerable interest in the investigation of mechanisms for trading commodities online. The potential for trading institutions to avail of automated trading environments and trading agents has spawned wide-ranging research into negotiation and interaction protocols in multi agent systems. The theory of mechanism design from economics has been employed to construct entities that allow autonomous, self-interested software agents to interact in distributed environments. This work provides a critical survey of the field of automated markets at the confluence of microeconomic theory and multi-agent systems with particular emphasis on market mechanisms that provide a continuous trading environment. The long-term objective of the research in this field is the creation of fair and accessible market environments for personalised agents to operate within. The work presented here analyses this objective from several perspectives, the system designer providing the protocols/regulations, the preferences of consumers trading in the market and the service providers trying to balance obligations with opportunities. It includes analysis of trading models, implementation of market mechanisms, development of algorithms and protocols for automatic negotiation and bidding strategies for agents. An in-depth survey of automated commodity markets is undertaken with particular emphasis on double auctions. The continuous double auction mechanism is investigated through simulation studies, which demonstrate the need for a high degree of synchronization between buyers and sellers for optimal performance in terms of efficiency and liquidity. However, such synchronization is unlikely to occur in practice in a continuous real-time environment, so there is a need for a market mechanism to provide sufficient liquidity and immediacy. In this context, the thesis considers a new type of automated market, i.e. a quote-driven market, where market maker(s) aggregate demand and supply continuously over time. Quote-driven markets are suitable for real-time trading in commodities e.g. financial products, bandwidth, and electricity. This work outlines typical scenarios for emerging commodity markets in electricity and bandwidth trading within which the operation of various market mechanisms is assessed.