Related papers: Non-average price impact in order-driven markets
We extend a linear version of the liquidity risk model of Cetin et al. (2004) to allow for price impacts. We show that the impact of a market order on prices depends on the size of the transaction and the level of liquidity. We obtain a…
Tick-sizes not only influence the granularity of the price formation process but also affect market agents' behavior. We investigate the disparity in the microstructural properties of the Limit Order Book (LOB) across a basket of assets…
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…
Market making is one of the most important aspects of algorithmic trading, and it has been studied quite extensively from a theoretical point of view. The practical implementation of so-called "optimal strategies" however suffers from the…
In this paper we derive a scaling limit for an infinite dimensional limit order book model driven by Hawkes random measures. The dynamics of the incoming order flow is allowed to depend on the current market price as well as on a volume…
The extent to which a matching engine can cloud the modelling of underlying order submission and management processes in a financial market remains an unanswered concern with regards to market models. Here we consider a 10-variate Hawkes…
We consider a dynamic market model of liquidity where unmatched buy and sell limit orders are stored in order books. The resulting net demand surface constitutes the sole input to the model. We prove that generically there is no arbitrage…
Online marketplace designers frequently run A/B tests to measure the impact of proposed product changes. However, given that marketplaces are inherently connected, total average treatment effect estimates obtained through Bernoulli…
We study the problem of optimal trading using general alpha predictors with linear costs and temporary impact. We do this within the framework of stochastic optimization with finite horizon using both limit and market orders. Consistently…
Through the analysis of a dataset of ultra high frequency order book updates, we introduce a model which accommodates the empirical properties of the full order book together with the stylized facts of lower frequency financial data. To do…
Statistical and dynamical characters of stock markets have been extensively studied, which now is providing the firm basis for econophysics and its application as ``stylized facts''. However, most of those studies are for markets under the…
Minimizing execution costs for large orders is a fundamental challenge in finance. Firms often depend on brokers to manage their trades due to limited internal resources for optimizing trading strategies. This paper presents a methodology…
Interference between treated and untreated units is a source of bias in marketplace experiments. In this paper, we specifically consider pricing interventions, in which a platform seeks to adjust base pricing levels at the marketplace level…
Based on the order flow data of a stock and its warrant, the immediate price impacts of market orders are estimated by two competitive models, the power-law model (PL model) and the logarithmic model (LG model). We find that the PL model is…
We propose a modeling framework for the dynamics of a reduced form order book in event time and based on event sizes. Our framework for the order book is influenced by [9], but compared to [9] we allow the best bid ask spread to be larger…
In an Ultrafast Extreme Event (or Mini Flash Crash), the price of a traded stock increases or decreases strongly within milliseconds. We present a detailed study of Ultrafast Extreme Events in stock market data. In contrast to popular…
Price impact of a trade is an important element in pre-trade and post-trade analyses. We introduce a framework to analyze the market price of liquidity risk, which allows us to derive an inhomogeneous Bernoulli ordinary differential…
We propose a limit order book (LOB) model with dynamics that account for both the impact of the most recent order and the shape of the LOB. We present an empirical analysis showing that the type of the last order significantly alters the…
This article considers the pricing and hedging of a call option when liquidity matters, that is, either for a large nominal or for an illiquid underlying asset. In practice, as opposed to the classical assumptions of a price-taking agent in…
This paper develops a model for option market making in which the hedging activity of the market maker generates price impact on the underlying asset. The option order flow is modeled by Cox processes, with intensities depending on the…