High-Resilience Limits of Block-Shaped Order Books
Trading and Market Microstructure
2014-09-26 v1 Optimization and Control
Probability
Portfolio Management
Abstract
We show that wealth processes in the block-shaped order book model of Obizhaeva/Wang converge to their counterparts in the reduced-form model proposed by Almgren/Chriss, as the resilience of the order book tends to infinity. As an application of this limit theorem, we explain how to reduce portfolio choice in highly-resilient Obizhaeva/Wang models to the corresponding problem in an Almgren/Chriss setup with small quadratic trading costs.
Keywords
Cite
@article{arxiv.1409.7269,
title = {High-Resilience Limits of Block-Shaped Order Books},
author = {Jan Kallsen and Johannes Muhle-Karbe},
journal= {arXiv preprint arXiv:1409.7269},
year = {2014}
}
Comments
12 pages