Abstract. We present a formal framework for the aggregation of
financial markets mediated by arbitrage. Our main tool is to
characterize markets via utility functions and to employ a one-to-one
correspondence to limit order book states. Inspired by the theory of
thermodynamics we argue that the arbitrage mediated aggregation
mechanism gives rise to a market-dynamical entropy, which quantifies
the loss of liquidity caused by aggregation. We also discuss future
directions of research in this emerging theory of market dynamics.

 

Joint work with Moritz Voss