Related papers: Order-book modelling and market making strategies
The Efficient Market Hypothesis has been a staple of economics research for decades. In particular, weak-form market efficiency -- the notion that past prices cannot predict future performance -- is strongly supported by econometric…
In this work, we investigate the market-making problem on a trading session in which a continuous phase on a limit order book is followed by a closing auction. Whereas standard optimal market-making models typically rely on terminal…
In this paper we develop a new form of agent-based model for limit order books based on heterogeneous trading agents, whose motivations are liquidity driven. These agents are abstractions of real market participants, expressed in a…
Market-based agents refer to reinforcement learning agents which determine their actions based on an internal market of sub-agents. We introduce a new type of market-based algorithm where the state itself is factored into several axes…
We propose a model for the dynamics of a limit order book in a liquid market where buy and sell orders are submitted at high frequency. We derive a functional central limit theorem for the joint dynamics of the bid and ask queues and show…
This paper studies a portfolio optimization problem in a discrete-time Markovian model of a financial market, in which asset price dynamics depend on an external process of economic factors. There are transaction costs with a structure that…
With a novel search algorithm or assortment planning or assortment optimization algorithm that takes into account a Bayesian approach to information updating and two-stage assortment optimization techniques, the current research provides a…
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…
Uncertainty in optimization is often represented as stochastic parameters in the optimization model. In Predict-Then-Optimize approaches, predictions of a machine learning model are used as values for such parameters, effectively…
We study the problem of the execution of a moderate size order in an illiquid market within the framework of a solvable Markovian model. We suppose that in order to avoid impact costs, a trader decides to execute her order through a unique…
In planning problems, it is often challenging to fully model the desired specifications. In particular, in human-robot interaction, such difficulty may arise due to human's preferences that are either private or complex to model.…
As a fundamental problem in algorithmic trading, order execution aims at fulfilling a specific trading order, either liquidation or acquirement, for a given instrument. Towards effective execution strategy, recent years have witnessed the…
Traditional online algorithms encapsulate decision making under uncertainty, and give ways to hedge against all possible future events, while guaranteeing a nearly optimal solution as compared to an offline optimum. On the other hand,…
This article provides a novel framework to evaluate limit order tactics that highlights expected fill price, adverse price selection cost, and opportunity cost. We formulate the problem of optimal execution of market orders with nonlinear…
Continuous double auctions such as the limit order book employed by exchanges are widely used in practice to match buyers and sellers of a variety of financial instruments. In this work, we develop an agent-based model for trading in a…
Social influence has been shown to create significant unpredictability in cultural markets, providing one potential explanation why experts routinely fail at predicting commercial success of cultural products. To counteract the difficulty…
We consider the issue of a market maker acting at the same time in the lit and dark pools of an exchange. The exchange wishes to establish a suitable make-take fees policy to attract transactions on its venues. We first solve the stochastic…
In this article, we delve into the applications and extensions of the queue-reactive model for the simulation of limit order books. Our approach emphasizes the importance of order sizes, in conjunction with their type and arrival rate, by…
As the FX markets continue to evolve, many institutions have started offering passive access to their internal liquidity pools. Market makers act as principal and have the opportunity to fill those orders as part of their risk management,…
Trading algorithms that execute large orders are susceptible to exploitation by order anticipation strategies. This paper studies the influence of order anticipation strategies in a multi-investor model of optimal execution under transient…