Trading and Market Microstructure
Hawkes processes have seen a number of applications in finance, due to their ability to capture event clustering behaviour typically observed in financial systems. Given a calibrated Hawkes process, of concern is the statistical fit to…
Commonly used limit order book attributes are empirically considered based on NASDAQ ITCH data. It is shown that some of them have the properties drastically different from the ones assumed in many market dynamics study. Because of this…
We consider a limit order book, where buyers and sellers register to trade a security at specific prices. The largest price buyers on the book are willing to offer is called the market bid price, and the smallest price sellers on the book…
The theory of optimal trading under proportional transaction costs has been considered from a variety of perspectives. In this paper, we show that all the results can be interpreted using a universal law, illustrating the results in trading…
We propose a new model for the level I of a Limit Order Book (LOB), which incorporates the information about the standing orders at the opposite side of the book after each price change and the arrivals of new orders within the spread. Our…
A market fix serves as a benchmark for foreign exchange (FX) execution, and is employed by many institutional investors to establish an exact reference at which execution takes place. The currently most popular FX fix is the World Market…
We present a simple order book mechanism that regulates an artificial financial market with self-organized criticality dynamics and fat tails of returns distribution. The model shows the role played by individual imitation in determining…
In this paper, we establish a fluid limit for a two--sided Markov order book model. Our main result states that in a certain asymptotic regime, a pair of measure-valued processes representing the "sell-side shape" and "buy-side shape" of an…
We propose a mathematical model for the word-of-mouth communications among stock investors through social networks and explore how the changes of the investors' social networks influence the stock price dynamics and vice versa. An investor…
Reinforcement learning is explored as a candidate machine learning technique to enhance existing analytical solutions for optimal trade execution with elements from the market microstructure. Given a volume-to-trade, fixed time horizon and…
We introduce and treat rigorously a new multi-agent model of the continuous double auction or in other words the order book (OB). It is designed to explain collective behaviour of the market when new information affecting the market…
Many independent studies on stocks and futures contracts have established that market impact is proportional to the square-root of the executed volume. Is market impact quantitatively similar for option markets as well? In order to answer…
Market impact is a key concept in the study of financial markets and several models have been proposed in the literature so far. The Transient Impact Model (TIM) posits that the price at high frequency time scales is a linear combination of…
In this paper, we employ the Heston stochastic volatility model to describe the stock's volatility and apply the model to derive and analyze the optimal trading strategies for dealers in a security market. We also extend our study to option…
In this paper, the optimal pricing strategy in Avellande-Stoikov's for a monopolistic dealer is extended to a general situation where multiple dealers are present in a competitive market. The dealers' trading intensities, their optimal bid…
In this research, we develop a trading strategy for the discrete-time optimal liquidation problem of large order trading with different market microstructures in an illiquid market. In this framework, the flow of orders can be viewed as a…
We use machine learning for designing a medium frequency trading strategy for a portfolio of 5 year and 10 year US Treasury note futures. We formulate this as a classification problem where we predict the weekly direction of movement of the…
We investigate whether the bid/ask queue imbalance in a limit order book (LOB) provides significant predictive power for the direction of the next mid-price movement. We consider this question both in the context of a simple binary…
We present an empirical analysis of the microstructure of financial markets and, in particular, of the static and dynamic properties of liquidity. We find that on relatively large time scales (15 minutes) large price fluctuations are…
In this paper we try to design the necessary calculation needed for backtesting trading systems when only candle chart data are available. We lay particular emphasis on situations which are not or not uniquely decidable and give possible…