Related papers: Microscopic understanding of heavy-tailed return d…
This research extends the conventional concepts of the bid--ask spread (BAS) and mid-price to include the total market order book bid--ask spread (TMOBBAS) and the global mid-price (GMP). Using high-frequency trading data, we investigate…
We study the dynamics of the limit order book of liquid stocks after experiencing large intra-day price changes. In the data we find large variations in several microscopical measures, e.g., the volatility the bid-ask spread, the bid-ask…
An agent-based model for financial markets has to incorporate two aspects: decision making and price formation. We introduce a simple decision model and consider its implications in two different pricing schemes. First, we study its…
There are multiple explanations for stylized facts in high-frequency trading, including adaptive and informed agents, many of which have been studied through agent-based models. This paper investigates an alternative explanation by…
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…
The latent order book of \cite{donier2015fully} is one of the most promising agent-based models for market impact. This work extends the minimal model by allowing agents to exhibit mean-reversion, a commonly observed pattern in real…
We investigate the mechanisms behind the power-law distribution of stock returns using artificial market simulations. While traditional financial theory assumes Gaussian price fluctuations, empirical studies consistently show that the tails…
There is a pervasive assumption that low latency access to an exchange is a key factor in the profitability of many high-frequency trading strategies. This belief is evidenced by the "arms race" undertaken by certain financial firms to…
We propose a stochastic process driven by the memory effect with novel distributions which include both exponential and leptokurtic heavy-tailed distributions. A class of the distributions is analytically derived from the continuum limit of…
We analyze a tractable model of a limit order book on short time scales, where the dynamics are driven by stochastic fluctuations between supply and demand. We establish the existence of a limiting distribution for the highest bid, and for…
Using the framework of factor models, we establish the general expression of the coefficient of tail dependence between the market and a stock (i.e., the probability that the stock incurs a large loss, assuming that the market has also…
We show that the quotient of Levy processes of jump-diffusion type has a fat-tailed distribution. An application is to price theory in economics. We show that fat tails arise endogenously from modeling of price change based on an excess…
Order book imbalance (OBI) - buy orders minus sell orders near the best quote - measures supply-demand imbalance that can move prices. OBI is positively correlated with returns, and some investors try to use it to improve performance. Large…
We investigate the behavior of limit order books on the meso-scale motivated by order execution scheduling algorithms. To do so we carry out empirical analysis of the order flows from market and limit order submissions, aggregated from…
Heavy-tailed distributions are found throughout many naturally occurring phenomena. We have reviewed the models of stochastic dynamics that lead to heavy-tailed distributions (and power law distributions, in particular) including the…
In this article, we present a discrete time modeling framework, in which the shape and dynamics of a Limit Order Book (LOB) arise endogenously from an equilibrium between multiple market participants (agents). We use the proposed modeling…
We investigate the problem of wealth distribution from the viewpoint of asset exchange. Robust nature of Pareto's law across economies, ideologies and nations suggests that this could be an outcome of trading strategies. However, the simple…
We present an experimental and simulated model of a multi-agent stock market driven by a double auction order matching mechanism. Studying the effect of cumulative information on the performance of traders, we find a non monotonic…
In this study, we investigate the statistical properties of the returns and the trading volume. We show a typical example of power-law distributions of the return and of the trading volume. Next, we propose an interacting agent model of…
A classic problem in physics is the origin of fat tailed distributions generated by complex systems. We study the distributions of stock returns measured over different time lags $\tau.$ We find that destroying all correlations without…