Related papers: Jump diffusion approximation for the price dynamic…
High Frequency Trading (HFT) represents an ever growing proportion of all financial transactions as most markets have now switched to electronic order book systems. The main goal of the paper is to propose continuous time equations which…
We propose a framework to study optimal trading policies in a one-tick pro-rata limit order book, as typically arises in short-term interest rate futures contracts. The high-frequency trader has the choice to trade via market orders or…
This paper explores the application and significance of the second-order Esscher pricing model in option pricing and risk management. We split the study into two main parts. First, we focus on the constant jump diffusion (CJD) case,…
We obtain large deviation results for a two time-scale model of jump-diffusion processes. The processes on the two time scales are fully inter-dependent, the slow process has small perturbative noise and the fast process is ergodic. Our…
We propose a model for price formation in financial markets based on clearing of a standard call auction with random orders, and verify its validity for prediction of the daily closing price distribution statistically. The model considers…
We present a multiscale approach to model diffusion in a crowded environment and its effect on the reaction rates. Diffusion in biological systems is often modeled by a discrete space jump process in order to capture the inherent noise of…
We study reinforcement learning for controlled diffusion processes with unbounded continuous state spaces, bounded continuous actions, and polynomially growing rewards: settings that arise naturally in finance, economics, and operations…
In this paper we develop a model of an order-driven market where traders set bids and asks and post market or limit orders according to exogenously fixed rules. Agents are assumed to have three components to the expectation of future asset…
We present the method of moments approach to pricing barrier-type options when the underlying is modelled by a general class of jump diffusions. By general principles the option prices are linked to certain infinite dimensional linear…
We present a study of price impact in the over-the-counter credit index market, where no limit order book is used. Contracts are traded via dealers, that compete for the orders of clients. Despite this distinct microstructure, we…
We propose an error-correcting model for the microprice, a high-frequency estimator of future prices given higher order information of imbalances in the orderbook. The model takes into account a current microprice estimate given the spread…
We analyze an optimal trade execution problem in a financial market with stochastic liquidity. To this end we set up a limit order book model in which both order book depth and resilience evolve randomly in time. Trading is allowed in both…
The paper studies a higher-order diffusion model of Maxwell-Stefan kind. The model is based upon higher-order moment equations of kinetic theory of mixtures, which include viscous dissipation in the model. Governing equations are analyzed…
Quantitative understanding of stochastic dynamics in limit order price changes is essential for execution strategy design. We analyze intraday transition dynamics of ask and bid orders across market capitalization tiers using high-frequency…
Devising models of the limit order book that realistically reproduce the market response to exogenous trades is extremely challenging and fundamental in order to test trading strategies. We propose a novel explainable model for small tick…
How and why stock prices move is a centuries-old question still not answered conclusively. More recently, attention shifted to higher frequencies, where trades are processed piecewise across different timescales. Here we reveal that price…
We propose a series of simple models for the microstructure of a double auction market without intermediaries. We specialize to those markets, such interdealer broker markets, which are dominated by professional traders, who trade mainly…
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…
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…
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…