Trading and Market Microstructure
We present a simple microstructure model of financial returns that combines (i) the well-known ARFIMA process applied to tick-by-tick returns, (ii) the bid-ask bounce effect, (iii) the fat tail structure of the distribution of returns and…
We describe a bottom-up framework, based on the identification of appropriate order parameters and determination of phase diagrams, for understanding progressively refined agent-based models and simulations of financial markets. We…
We define a numerical method that provides a non-parametric estimation of the kernel shape in symmetric multivariate Hawkes processes. This method relies on second order statistical properties of Hawkes processes that relate the covariance…
The asymmetric price impact between the institutional purchases and sales of 32 liquid stocks in Chinese stock markets in year 2003 is carefully studied. We analyze the price impact in both drawup and drawdown trends with consecutive…
We use statistically validated networks, a recently introduced method to validate links in a bipartite system, to identify clusters of investors trading in a financial market. Specifically, we investigate a special database allowing to…
We study the daily trading volume volatility of 17,197 stocks in the U.S. stock markets during the period 1989--2008 and analyze the time return intervals $\tau$ between volume volatilities above a given threshold q. For different…
We study a variation of the minority game. There are N agents. Each has to choose between one of two alternatives everyday, and there is reward to each member of the smaller group. The agents cannot communicate with each other, but try to…
We present a general Markovian framework for order book modeling. Through our approach, we aim at providing a tool enabling to get a better understanding of the price formation process and of the link between microscopic and macroscopic…
Economy is demanding new models, able to understand and predict the evolution of markets. To this respect, Econophysics offers models of markets as complex systems, that try to comprehend macro-, system-wide states of the economy from the…
A detailed analysis of correlation between stock returns at high frequency is compared with simple models of random walks. We focus in particular on the dependence of correlations on time scales - the so-called Epps effect. This provides a…
In this paper we propose an overview of the recent academic literature devoted to the applications of Hawkes processes in finance. Hawkes processes constitute a particular class of multivariate point processes that has become very popular…
The gauge theory of arbitrage was introduced by Ilinski in [arXiv:hep-th/9710148] and applied to fast money flows in [arXiv:cond-mat/9902044]. The theory of fast money flow dynamics attempts to model the evolution of currency exchange rates…
In the present work we introduce a novel multi-agent model with the aim to reproduce the dynamics of a double auction market at microscopic time scale through a faithful simulation of the matching mechanics in the limit order book. The…
Large trades in a financial market are usually split into smaller parts and traded incrementally over extended periods of time. We address these large trades as hidden orders. In order to identify and characterize hidden orders we fit…
Motivated by the industry practice of pairs trading, we study the optimal timing strategies for trading a mean-reverting price spread. An optimal double stopping problem is formulated to analyze the timing to start and subsequently…
Motivated by how transaction amount constrain trading volume and price volatility in stock market, we, in this paper, study the relation between volume and price if amount of transaction is given. We find that accumulative trading volume…
Despite the availability of very detailed data on financial market, agent-based modeling is hindered by the lack of information about real trader behavior. This makes it impossible to validate agent-based models, which are thus…
In a financial market, for agents with long investment horizons or at times of severe market stress, it is often changes in the asset price that act as the trigger for transactions or shifts in investment position. This suggests the use of…
We empirically study the market impact of trading orders. We are specifically interested in large trading orders that are executed incrementally, which we call hidden orders. These are reconstructed based on information about market member…
In this paper we continue our systematic analysis of the operatorial approach previously proposed in an economical context and we discuss a {\em mixed} toy model of a simplified stock market, i.e. a model in which the price of the shares is…