English

Bridging the Reality Gap in Limit Order Book Simulation

Trading and Market Microstructure 2026-03-26 v1

Abstract

We introduce a practical, interactive simulator of the limit order book for large-tick assets, designed to produce realistic execution, costs, and P&L. The book state is projected onto a tractable representation based on spread and volume imbalance, enabling robust estimation from market data. Event timing is calibrated to reproduce the fine-scale temporal structure of real markets, revealing a pronounced mode at exchange round-trip latency consistent with simultaneous reactions and latency races among participants. We further incorporate a feedback mechanism that accumulates signed trade flow through a power-law decay kernel, reproducing both concave market impact during execution and partial post-trade reversion. Across several stocks and strategy case studies, the simulator yields realistic behavior where profitability becomes highly sensitive to execution parameters. We present the approach as a practical recipe: project, estimate, validate, adapt, for building realistic limit order book simulations.

Keywords

Cite

@article{arxiv.2603.24137,
  title  = {Bridging the Reality Gap in Limit Order Book Simulation},
  author = {Patrick Noble and Mathieu Rosenbaum and Saad Souilmi},
  journal= {arXiv preprint arXiv:2603.24137},
  year   = {2026}
}
R2 v1 2026-07-01T11:37:03.599Z