Related papers: Studies of the limit order book around large price…
Devising models of the limit order book that realistically reproduce the market response to exogenous trades is extremely challenging and fundamental in order to test trading strategies. We propose a novel explainable model for small tick…
In this chapter we review some recent results on the dynamics of price formation in financial markets and its relations with the efficient market hypothesis. Specifically, we present the limit order book mechanism for markets and we…
This paper focuses on some simple models of limit order book dynamics which simulate market trading mechanisms. We start with a discrete time/space Markov process and then perform a re-scaling procedure leading to a deterministic dynamical…
This paper proposes a parametric approach for stochastic modeling of limit order markets. The models are obtained by augmenting classical perfectly liquid market models by few additional risk factors that describe liquidity properties of…
We consider a framework for solving optimal liquidation problems in limit order books. In particular, order arrivals are modeled as a point process whose intensity depends on the liquidation price. We set up a stochastic control problem in…
We propose a framework for studying optimal market making policies in a limit order book (LOB). The bid-ask spread of the LOB is modelled by a Markov chain with finite values, multiple of the tick size, and subordinated by the Poisson…
We introduce a Cox-type model for relative intensities of orders flows in a limit order book. The model assumes that all intensities share a common baseline intensity, which may for example represent the global market activity. Parameters…
We present an extended version of the recently proposed "LLOB" model for the dynamics of latent liquidity in financial markets. By allowing for finite cancellation and deposition rates within a continuous reaction-diffusion setup, we…
We show that multivariate Hawkes processes coupled with the nonparametric estimation procedure first proposed in Bacry and Muzy (2015) can be successfully used to study complex interactions between the time of arrival of orders and their…
We study the multi-level order-flow imbalance (MLOFI), which is a vector quantity that measures the net flow of buy and sell orders at different price levels in a limit order book (LOB). Using a recent, high-quality data set for 6 liquid…
Large variations in stock prices happen with sufficient frequency to raise doubts about existing models, which all fail to account for non-Gaussian statistics. We construct simple models of a stock market, and argue that the large…
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…
I present an overview of some recent advancements on the empirical analysis and theoretical modeling of the process of price formation in financial markets as the result of the arrival of orders in a limit order book exchange. After…
It is known that the impact of transactions on stock price (market impact) is a concave function of the size of the order, but there exists little quantitative theory that suggests why this is so. I develop a quantitative theory for the…
Synchronising a database of stock specific news with 5 years worth of order book data on 300 stocks, we show that abnormal price movements following news releases (exogenous) exhibit markedly different dynamical features from those arising…
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…
In this paper we derive a scaling limit for an infinite dimensional limit order book model driven by Hawkes random measures. The dynamics of the incoming order flow is allowed to depend on the current market price as well as on a volume…
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 revisit the "epsilon-intelligence" model of Toth et al.(2011), that was proposed as a minimal framework to understand the square-root dependence of the impact of meta-orders on volume in financial markets. The basic idea is that most of…
A novel high-frequency market-making approach in discrete time is proposed that admits closed-form solutions. By taking advantage of demand functions that are linear in the quoted bid and ask spreads with random coefficients, we model the…