Related papers: Price impact in equity auctions: zero, then linear
We study a microscopic limit order book model, in which the order dynamics depend on the current best bid and ask price and the current volume density functions, simultaneously, and derive its macroscopic high-frequency dynamics. As opposed…
Understanding the impact of trades on prices is a crucial question for both academic research and industry practice. It is well established that impact follows a square-root impact as a function of traded volume. However, the microscopic…
Markets have internal dynamics leading to excess volatility and other phenomena that are difficult to explain using rational expectations models. This paper studies these using a nonequilibrium price formation rule, developed in the context…
Modern financial market dynamics warrant detailed analysis due to their significant impact on the world. This, however, often proves intractable; massive numbers of agents, strategies and their change over time in reaction to each other…
We make an extensive empirical study of the market impact of large orders (metaorders) executed in the U.S. equity market between 2007 and 2009. We show that the square root market impact formula, which is widely used in the industry and…
In standard Walrasian auctions, the price of a good is defined as the point where the supply and demand curves intersect. Since both curves are generically regular, the response to small perturbations is linearly small. However, a crucial…
This paper studies the optimal investment problem with random endowment in an inventory-based price impact model with competitive market makers. Our goal is to analyze how price impact affects optimal policies, as well as both pricing rules…
In this study, we present a simple stochastic order-book model for investors' swarm behaviors seen in the continuous double auction mechanism, which is employed by major global exchanges. Our study shows a characteristic called "fat tail"…
Many early order flow auction designs handle the payment for orders when they execute on the chain rather than when they are won in the auction. Payments in these auctions only take place when the orders are executed, creating a free option…
The progressive second-price auction of Lazar and Semret is a decentralized mechanism for the allocation and real-time pricing of a divisible resource. Our focus is on how delays in the receipt of bid messages, asynchronous analysis by…
We study the efficiency of sequential first-price item auctions at (subgame perfect) equilibrium. This auction format has recently attracted much attention, with previous work establishing positive results for unit-demand valuations and…
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…
This paper deals with a stochastic order-driven market model with waiting costs, for order books with heterogenous traders. Offer and demand of liquidity drives price formation and traders anticipate future evolutions of the order book. The…
Recent empirical studies have demonstrated long-memory in the signs of orders to buy or sell in financial markets [2, 19]. We show how this can be caused by delays in market clearing. Under the common practice of order splitting, large…
We study equilibrium investment into bidding and latency reduction for different sequencing policies. For a batch auction design, we observe that bidders shade bids according to the likelihood that competing bidders land in the current…
We consider a simplified model of the continuous double auction where prices are integers varying from $1$ to $N$ with limit orders and market orders, but quantity per order limited to a single share. For this model, the order process is…
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…
A tick size is the smallest increment of a security price. It is clear that at the shortest time scale on which individual orders are placed the tick size has a major role which affects where limit orders can be placed, the bid-ask spread,…
Shilling is the use of artificial bids to make competition appear stronger and push prices upward. We study repeated first-price auctions in which shilling affects feedback but not allocation: the learner wins or loses against the real…
R. Cont and A. de Larrard (SIAM J. Finan. Math, 2013) introduced a tractable stochastic model for the dynamics of a limit order book, computing various quantities of interest such as the probability of a price increase or the diffusion…