Related papers: Equity auction dynamics: latent liquidity models w…
This paper presents an equilibrium model of dynamic trading, learning, and pricing by strategic investors with trading targets and price impact. Since trading targets are private, rebalancers and liquidity providers filter the child order…
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…
A limit order book provides information on available limit order prices and their volumes. Based on these quantities, we give an empirical result on the relationship between the bid-ask liquidity balance and trade sign and we show that…
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 model an informed agent with information about the future value of an asset trying to maximize profits when subjected to a transaction cost as well as a market maker tasked with setting fair transaction prices. In a single auction model,…
We introduce and treat rigorously a new multi-agent model of the continuous double auction or in other words the order book (OB). It is designed to explain collective behaviour of the market when new information affecting the market…
We propose a class of stochastic models for a dynamics of limit order book with different type of liquidities. Within this class of models we study the one where a spread decreases uniformly, belonging to the class of processes known as a…
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…
Auction data often contain information on only the most competitive bids as opposed to all bids. The usual measurement error approaches to unobserved heterogeneity are inapplicable due to dependence among order statistics. We bridge this…
This paper presents a continuous-time model of intraday trading, pricing, and liquidity with dynamic TWAP and VWAP benchmarks. The model is solved in closed-form for the competitive equilibrium and also for non-price-taking equilibria. The…
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…
The first-price auction is popular in practice for its simplicity and transparency. Moreover, its potential virtues grow in complex settings where incentive compatible auctions may generate little or no revenue. Unfortunately, the…
An ability to postpone one's execution without penalty provides an important strategic advantage in high-frequency trading. To elucidate competition between traders one has to formulate to a quantitative theory of formation of the execution…
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…
This work's purpose is to understand the dynamics of limit order books in order-driven markets. We try to illustrate a dynamical trading mechanism attached to the microstructure of limit order markets. We capture the iterative nature of…
We construct an utility-based dynamic asset pricing model for a limit order market. The price is nonlinear in volume and subject to market impact. We solve an optimal hedging problem under the market impact and derive the dynamics of the…
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…
An agent-based model for financial markets has to incorporate two aspects: decision making and price formation. We introduce a simple decision model and consider its implications in two different pricing schemes. First, we study its…
This paper derives a diffusion approximation for a sequence of discrete-time one-sided limit order book models with non-linear state dependent order arrival and cancellation dynamics. The discrete time sequences are specified in terms of an…
The primary objective of this paper is to conceive and develop a new methodology to detect notable changes in liquidity within an order-driven market. We study a market liquidity model which allows us to dynamically quantify the level of…