Related papers: An empirical behavioural order-driven model with p…
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…
Pricing decisions are often made when market information is still poor. In turn, existing theoretical models often reason about the response of optimal prices to changing market characteristics without exploiting all available information…
We consider a general class of high-volume, fast-moving production-inventory systems based on both lost-sales and backorder inventory models. Such systems require a fundamental understanding of the asymptotic behavior of key performance…
This study addresses the interpretable estimation of price bounds in the context of price optimization. In recent years, price-optimization methods have become indispensable for maximizing revenue and profits. However, effective application…
In this work, we consider a continuous-time inventory system where the demand process follows an inventory-dependent diffusion process. The ordering cost of each order depends on the order quantity and is given by a general function, which…
The dynamics of market prices is described as the evolution of opinions in the trading community regarding future market behavior. The price then is a function of the voting process of the market players in favor to raise or reduce the…
Kyle (1985) builds a pioneering and influential model, in which an insider with long-lived private information submits an optimal order in each period given the market maker's pricing rule. An inconsistency exists to some extent in the…
Many studies assume stock prices follow a random process known as geometric Brownian motion. Although approximately correct, this model fails to explain the frequent occurrence of extreme price movements, such as stock market crashes. Using…
We construct an utility-based dynamic asset pricing model for a limit order market. The price is nonlinear in volume and subject to market impact. We solve an optimal hedging problem under the market impact and derive the dynamics of the…
We study the statistical regularities of opening call auction using the ultra-high-frequency data of 22 liquid stocks traded on the Shenzhen Stock Exchange in 2003. The distribution of the relative price, defined as the relative difference…
We consider the worst-case expectation of a permutation invariant ambiguity set of discrete distributions as a proxy-cost for data-driven expected risk minimization. For this framework, we coin the term ordered risk minimization to…
The determination of acceptability prices of contingent claims requires the choice of a stochastic model for the underlying asset price dynamics. Given this model, optimal bid and ask prices can be found by stochastic optimization. However,…
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…
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…
Firms that price perishable resources -- airline seats, hotel rooms, seasonal inventory -- now routinely use demand predictions, but these predictions vary widely in quality. Under hard capacity constraints, acting on an inaccurate…
We have analyzed the statistical probabilities of limit-order book (LOB) shape through building the book using the ultra-high-frequency data from 23 liquid stocks traded on the Shenzhen Stock Exchange in 2003. We find that the averaged LOB…
We analyze waiting times for price changes in a foreign currency exchange rate. Recent empirical studies of high frequency financial data support that trades in financial markets do not follow a Poisson process and the waiting times between…
The study of intelligent systems explains behaviour in terms of economic rationality. This results in an optimization principle involving a function or utility, which states that the system will evolve until the configuration of maximum…
Using frequency distributions of daily closing price time series of several financial market indexes, we investigate whether the bias away from an equiprobable sequence distribution found in the data, predicted by algorithmic information…
We develop a theory of bid and ask price dynamics where the two prices form due to interaction of buy and sell orders. In this model the two prices are represented by eigenvalues of a 2x2 price operator corresponding to "bid" and "ask"…