Related papers: Fluctuations and Market Friction in Financial Trad…
We study the relationship between price spread, volatility and trading volume. We find that spread forms as a result of interplay between order liquidity and order impact. When trading volume is small adding more liquidity helps improve…
We respond to the issues discussed by Farmer and Lillo (FL) related to our proposed approach to understanding the origin of power-law distributions in stock price fluctuations. First, we extend our previous analysis to 1000 US stocks and…
A new theory for pricing options of a stock is presented. It is based on the assumption that while successive variations in return are uncorrelated, the frequency with which a stock is traded depends on the value of the return. The solution…
We introduce and study a simple model of a limit order-driven market. Traders in this model can either trade at the market price or place a limit order, i.e. an instruction to buy (sell) a certain amount of the stock if its price falls…
Single index financial market models cannot account for the empirically observed complex interactions between shares in a market. We describe a multi-share financial market model and compare characteristics of the volatility, that is the…
We describe a new model to simulate the dynamic interactions between market price and the decisions of two different kind of traders. They possess spatial mobility allowing to group together to form coalitions. Each coalition follows a…
Scaling properties in financial fluctuations are reviewed from the standpoint of statistical physics. We firstly show theoretically that the balance of demand and supply enhances fluctuations due to the underlying phase transition…
In this paper we compare market price fluctuations with the response to fundamental price drops within the Lux-Marchesi model which is able to reproduce the most important stylized facts of real market data. Major differences can be…
Large variations in stock prices happen with sufficient frequency to raise doubts about existing models, which all fail to account for non-Gaussian statistics. We construct simple models of a stock market, and argue that the large…
A statistical physics model for the time evolutions of stock portfolios is proposed. In this model the time series of price changes are coded into the sequences of up and down spins. The Hamiltonian of the system is introduced and is…
In this study, we introduce a physical model inspired by statistical physics for predicting price volatility and expected returns by leveraging Level 3 order book data. By drawing parallels between orders in the limit order book and…
We develop a behavioral model for liquidity and volatility based on empirical regularities in trading order flow in the London Stock Exchange. This can be viewed as a very simple agent based model in which all components of the model are…
We introduce a new model in order to describe the fluctuation of tick-by-tick financial time series. Our model, based on marked point process, allows us to incorporate in a unique process the duration of the transaction and the…
Far-from-equilibrium models of interacting particles in one dimension are used as a basis for modelling the stock-market fluctuations. Particle types and their positions are interpreted as buy and sell orders placed on a price axis in the…
I present an overview of some recent advancements on the empirical analysis and theoretical modeling of the process of price formation in financial markets as the result of the arrival of orders in a limit order book exchange. After…
The dynamics of a stock market with heterogeneous agents is discussed in the framework of a recently proposed spin model for the emergence of bubbles and crashes. We relate the log returns of stock prices to magnetization in the model and…
The imbalance of buying and selling functions profoundly in the formation of market trends, however, a fine-granularity investigation of the imbalance is still missing. This paper investigates a unique transaction dataset that enables us to…
We introduce a microscopic model for the dynamics of the order book to study how the lack of liquidity influences price fluctuations. We use the average density of the stored orders (granularity $g$) as a proxy for liquidity. This leads to…
The basis of arbitrage methods depends on the circulation of information within the framework of the financial market. Following the work of Modigliani and Miller, it has become a vital part of discussions related to the study of financial…
This paper develops a comprehensive theoretical framework that imports concepts from stochastic thermodynamics to model price impact and characterize the feasibility of round-trip arbitrage in financial markets. A trading cycle is treated…