Related papers: Designating market maker behaviour in Limit Order …
Latency (i.e., time delay) in electronic markets affects the efficacy of liquidity taking strategies. During the time liquidity takers process information and send marketable limit orders (MLOs) to the exchange, the limit order book (LOB)…
Market making (MM) is an important research topic in quantitative finance, the agent needs to continuously optimize ask and bid quotes to provide liquidity and make profits. The limit order book (LOB) contains information on all active…
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…
Financial market simulation (FMS) serves as a promising tool for understanding market anomalies and the underlying trading behaviors. To ensure high-fidelity simulations, it is crucial to calibrate the FMS model for generating data closely…
We use a recent, high-quality data set from Nasdaq to perform an empirical analysis of order flow in a limit order book (LOB) before and after the arrival of a market order. For each of the stocks that we study, we identify a sequence of…
The limit order book (LOB) depicts the fine-grained demand and supply relationship for financial assets and is widely used in market microstructure studies. Nevertheless, the availability and high cost of LOB data restrict its wider…
We study the trading activity of designated market makers (DMMs) in electronic markets using a unique dataset with audit-trail information on trader classification. DMMs may either adhere to their market-making agreements and offer…
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…
Market making is a fundamental trading problem in which an agent provides liquidity by continually offering to buy and sell a security. The problem is challenging due to inventory risk, the risk of accumulating an unfavourable position and…
The modeling of the limit order book is directly related to the assumptions on the behavior of real market participants. This paper is twofold. We first present empirical findings that lay the ground for two improvements to these models.The…
We introduce a practical, interactive simulator of the limit order book for large-tick assets, designed to produce realistic execution, costs, and P&L. The book state is projected onto a tractable representation based on spread and volume…
Market makers provide liquidity to other market participants: they propose prices at which they stand ready to buy and sell a wide variety of assets. They face a complex optimization problem with both static and dynamic components. They…
We develop a new market-making model, from the ground up, which is tailored towards high-frequency trading under a limit order book (LOB), based on the well-known classification of order types in market microstructure. Our flexible…
We provide an explicit characterization of the optimal market making strategy in a discrete-time Limit Order Book (LOB). In our model, the number of filled orders during each period depends linearly on the distance between the fundamental…
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…
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…
With the fragmentation of electronic markets, exchanges are now competing in order to attract trading activity on their platform. Consequently, they developed several regulatory tools to control liquidity provision / consumption on their…
In electronic trading markets, limit order books (LOBs) provide information about pending buy/sell orders at various price levels for a given security. Recently, there has been a growing interest in using LOB data for resolving downstream…
The process of liquidity provision in financial markets can result in prolonged exposure to illiquid instruments for market makers. In this case, where a proprietary position is not desired, pro-actively targeting the right client who is…
Many proposed methods for explaining machine learning predictions are in fact challenging to understand for nontechnical consumers. This paper builds upon an alternative consumer-driven approach called TED that asks for explanations to be…