Related papers: Equilibrium Pricing in an Order Book Environment: …
We introduce a new class of combinatorial markets in which agents have covering constraints over resources required and are interested in delay minimization. Our market model is applicable to several settings including scheduling, cloud…
Motivated by the desire to bridge the gap between the microscopic description of price formation (agent-based modeling) and the stochastic differential equations approach used classically to describe price evolution at macroscopic time…
In this paper, we introduce a parametrized family of prices derived from the Maximum Entropy Principle. The price is obtained from the distribution that minimizes bias, given the bid and ask volume imbalance at the top of the order book.…
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…
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…
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 propose and study a simple stochastic model for the dynamics of a limit order book, in which arrivals of market order, limit orders and order cancellations are described in terms of a Markovian queueing system. Through its analytical…
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…
The notion that economies should normally be in equilibrium is by now well-established; equally well-established is that economies are almost never precisely in equilibrium. Using a very general formulation, we show that under dynamics that…
We propose a modeling framework for the dynamics of a reduced form order book in event time and based on event sizes. Our framework for the order book is influenced by [9], but compared to [9] we allow the best bid ask spread to be larger…
Linear Fisher market is one of the most fundamental economic models. The market is traditionally examined on the basis of individual's price-taking behavior. However, this assumption breaks in markets such as online advertising and…
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…
Buying and selling stocks causes price changes, which are described by the price impact function. To explain the shape of this function, we study the Island ECN orderbook. In addition to transaction data, the orderbook contains information…
Through the analysis of a dataset of ultra high frequency order book updates, we introduce a model which accommodates the empirical properties of the full order book together with the stylized facts of lower frequency financial data. To do…
In financial markets, the order flow, defined as the process assuming value one for buy market orders and minus one for sell market orders, displays a very slowly decaying autocorrelation function. Since orders impact prices, reconciling…
We study the price impact of order book events - limit orders, market orders and cancelations - using the NYSE TAQ data for 50 U.S. stocks. We show that, over short time intervals, price changes are mainly driven by the order flow…
Markets have internal dynamics leading to excess volatility and other phenomena that are difficult to explain using rational expectations models. This paper studies these using a nonequilibrium price formation rule, developed in the context…
We propose an analytically tractable class of models for the dynamics of a limit order book, described through a stochastic partial differential equation (SPDE) with multiplicative noise for the order book centered at the mid-price, along…
This paper studies the fill probabilities of limit orders placed at different price levels in a limit order book. These probabilities play a central role in execution optimization, as limit orders are not guaranteed to be executed and…
This paper studies Markov perfect equilibria in a repeated duopoly model where sellers choose algorithms. An algorithm is a mapping from the competitor's price to own price. Once set, algorithms respond quickly. Customers arrive randomly…