Related papers: Endogenous Liquidity Crises
Financial contagion from liquidity shocks has being recently ascribed as a prominent driver of systemic risk in interbank lending markets. Building on standard compartment models used in epidemics, in this work we develop an EDB…
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…
The order flow in high-frequency financial markets has been of particular research interest in recent years, as it provides insights into trading and order execution strategies and leads to better understanding of the supply-demand…
The paper proposes a framework for modeling and analysis of the dynamics of supply, demand, and clearing prices in power system with real-time retail pricing and information asymmetry. Real-time retail pricing is characterized by passing on…
We present an empirical study of the intertwined behaviour of members in a financial market. Exploiting a database where the broker that initiates an order book event can be identified, we decompose the correlation and response functions…
Financial contagion has been widely recognized as a fundamental risk to the financial system. Particularly potent is price-mediated contagion, wherein forced liquidations by firms depress asset prices and propagate financial stress,…
We propose an actionable calibration procedure for general Quadratic Hawkes models of order book events (market orders, limit orders, cancellations). One of the main features of such models is to encode not only the influence of past events…
This paper explores the mechanisms behind extreme financial events, specifically market crashes, by employing the theoretical framework of phase transitions. We focus on endogenous crashes, driven by internal market dynamics, and model…
We conduct modeling of the price dynamics following order flow imbalance in market microstructure and apply the model to the analysis of Chinese CSI 300 Index Futures. There are three findings. The first is that the order flow imbalance is…
The distribution of liquidity within the limit order book is essential for the impact of market orders on the stock price and the emergence of price shocks. Limit orders are characterized by stylized facts: The number of inserted limit…
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…
As the Reynolds number is increased, a laminar fluid flow becomes turbulent, and the range of time and length scales associated with the flow increases. Yet, in a turbulent reactive flow system, as we increase the Reynolds number, we…
We present a general Markovian framework for order book modeling. Through our approach, we aim at providing a tool enabling to get a better understanding of the price formation process and of the link between microscopic and macroscopic…
A micro-scale model is proposed for the evolution of the limit order book. Within this model, the flows of orders (claims) are described by doubly stochastic Poisson processes taking account of the stochastic character of intensities of bid…
Equity auctions display several distinctive characteristics in contrast to continuous trading. As the auction time approaches, the rate of events accelerates causing a substantial liquidity buildup around the indicative price. This, in…
The thermodynamics of the $q$-state Potts model with arbitrary $q$ on a class of hierarchical lattices is considered. Contrary to the case of the crystal lattices, it has always the second-order phase transitions. The analytical expressions…
We introduce a new measure of activity of financial markets that provides a direct access to their level of endogeneity. This measure quantifies how much of price changes are due to endogenous feedback processes, as opposed to exogenous…
We present an extended version of the recently proposed "LLOB" model for the dynamics of latent liquidity in financial markets. By allowing for finite cancellation and deposition rates within a continuous reaction-diffusion setup, we…
Price changes are induced by aggressive market orders in stock market. We introduce a bivariate marked Hawkes process to model aggressive market order arrivals at the microstructural level. The order arrival intensity is marked by an…
Targeting a better understanding of credit market dynamics, the authors have studied a stochastic model named the Hawkes process. Describing trades arrival times, this kind of model allows for the capture of self-excitement and mutual…