Related papers: Feedback and efficiency in limit order markets
Order flow in equity markets is remarkably persistent in the sense that order signs (to buy or sell) are positively autocorrelated out to time lags of tens of thousands of orders, corresponding to many days. Two possible explanations are…
We present a perturbation theory of the market impact based on an extension of the framework proposed by [Loeper, 2018] -- originally based on [Liu and Yong, 2005] -- in which we consider only local linear market impact. We study the…
This work's purpose is to understand the dynamics of limit order books in order-driven markets. We try to illustrate a dynamical trading mechanism attached to the microstructure of limit order markets. We capture the iterative nature of…
Most of the existing literature on optimal trade execution in limit order book models assumes that resilience is positive. But negative resilience also has a natural interpretation, as it models self-exciting behaviour of the price impact,…
The tick size, which is the smallest increment between two consecutive prices for a given asset, is a key parameter of market microstructure. In particular, the behavior of high frequency market makers is highly related to its value. We…
We introduce and study a simple model of a limit order-driven market. Traders in this model can either trade at the market price or place a limit order, i.e. an instruction to buy (sell) a certain amount of the stock if its price falls…
Standard models in economics stress the role of intelligent agents who maximize utility. However, there may be situations where, for some purposes, constraints imposed by market institutions dominate intelligent agent behavior. We use data…
R. Cont and A. de Larrard (SIAM J. Finan. Math, 2013) introduced a tractable stochastic model for the dynamics of a limit order book, computing various quantities of interest such as the probability of a price increase or the diffusion…
Trading large volumes of a financial asset in order driven markets requires the use of algorithmic execution dividing the volume in many transactions in order to minimize costs due to market impact. A proper design of an optimal execution…
Limit Order Books (LOBs) serve as a mechanism for buyers and sellers to interact with each other in the financial markets. Modelling and simulating LOBs is quite often necessary for calibrating and fine-tuning the automated trading…
Post Modigliani and Miller (1958), the concept of usage of arbitrage created a permanent mark on the discourses of financial framework. The arbitrage process is largely based on information dissemination amongst the stakeholders operating…
One popular approach to model the limit order books dynamics of the best bid and ask at level-1 is to use the reduced-form diffusion approximations. It is well known that the biggest contributing factor to the price movement is the…
We investigate several statistical properties of the order book of three liquid stocks of the Paris Bourse. The results are to a large degree independent of the stock studied. The most interesting features concern (i) the statistics of…
We show that filling an order with a large number of distinct counterparts incurs additional market impact, as opposed to filling the order with a small number of counterparts. For best execution, therefore, it may be beneficial to…
We explore how dynamic entry deterrence operates through feedback strategies in markets experiencing stochastic demand fluctuations. The incumbent firm, aware of its own cost structure, can deter a potential competitor by strategically…
We compare the predictions of the stationary Kyle model, a microfounded multi-step linear price impact model in which market prices forecast fundamentals through information encoded in the order flow, with those of the propagator model, a…
We propose a minimal theory of non-linear price impact based on a linear (latent) order book approximation, inspired by diffusion-reaction models and general arguments. Our framework allows one to compute the average price trajectory in the…
We consider a one-period Kyle (1985) framework where the insider can be subject to a penalty if she trades. We establish existence and uniqueness of equilibrium for virtually any penalty function when noise is uniform. In equilibrium, the…
Our goal in this paper is to study the market impact in a market in which the order flow is autocorrelated. We build a model which explains qualitatively and quantitatively the empirical facts observed so far concerning market impact. We…
Interference between treated and untreated units is a source of bias in marketplace experiments. In this paper, we specifically consider pricing interventions, in which a platform seeks to adjust base pricing levels at the marketplace level…