A Scaling Limit for Limit Order Books Driven by Hawkes Processes
Mathematical Finance
2018-08-09 v2
Abstract
In this paper we derive a scaling limit for an infinite dimensional limit order book model driven by Hawkes random measures. The dynamics of the incoming order flow is allowed to depend on the current market price as well as on a volume indicator. With our choice of scaling the dynamics converges to a coupled SDE-ODE system where limiting best bid and ask price processes follows a diffusion dynamics, the limiting volume density functions follows an ODE in a Hilbert space and the limiting order arrival and cancellation intensities follow a Volterra-Fredholm integral equation.
Keywords
Cite
@article{arxiv.1709.01292,
title = {A Scaling Limit for Limit Order Books Driven by Hawkes Processes},
author = {Ulrich Horst and Wei Xu},
journal= {arXiv preprint arXiv:1709.01292},
year = {2018}
}