Related papers: Limit order market analysis and modelling: on an u…
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…
Although behavioral economics has demonstrated that there are many situations where rational choice is a poor empirical model, it has so far failed to provide quantitative models of economic problems such as price formation. We make a step…
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…
This paper studies the fill probabilities of limit orders placed at different price levels in a limit order book. These probabilities play a central role in execution optimization, as limit orders are not guaranteed to be executed and…
In financial markets, the order flow, defined as the process assuming value one for buy market orders and minus one for sell market orders, displays a very slowly decaying autocorrelation function. Since orders impact prices, reconciling…
To execute a trade, participants in electronic equity markets may choose to submit limit orders or market orders across various exchanges where a stock is traded. This decision is influenced by the characteristics of the order flow and…
While the market impact of aggressive orders has been extensively studied, the impact of passive orders, those executed through limit orders, remains less understood. The goal of this paper is to investigate passive market impact by…
We develop an empirical behavioural order-driven (EBOD) model, which consists of an order placement process and an order cancellation process. Price limit rules are introduced in the definition of relative price. The order placement process…
This paper analyzes single-item continuous-review inventory models with random supplies in which the inventory dynamic between orders is described by a diffusion process, and a long-term average cost criterion is used to evaluate decisions.…
It is known that the impact of transactions on stock price (market impact) is a concave function of the size of the order, but there exists little quantitative theory that suggests why this is so. I develop a quantitative theory for the…
We extend a Discrete Time Random Walk (DTRW) numerical scheme to simulate the anomalous diffusion of financial market orders in a simulated order book. Here using random walks with Sibuya waiting times to include a time-dependent stochastic…
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…
The impact of trades on asset prices is a crucial aspect of market dynamics for academics, regulators and practitioners alike. Recently, universal and highly nonlinear master curves were observed for price impacts aggregated on all…
We present a general framework for modelling the dynamics of limit order books, built on the combination of two modelling ingredients: the order flow, modelled as a general spatial point process, and market clearing, modelled via a…
Market making refers to a form of trading in financial markets characterized by passive orders which add liquidity to limit order books. Market makers are important for the proper functioning of financial markets worldwide. Given the…
Modeling the impact of the order flow on asset prices is of primary importance to understand the behavior of financial markets. Part I of this paper reported the remarkable improvements in the description of the price dynamics which can be…
Latent order book models have allowed for significant progress in our understanding of price formation in financial markets. In particular they are able to reproduce a number of stylized facts, such as the square-root impact law. An…
We derive a continuous time model for the joint evolution of the mid price and the bid-ask spread from a multiscale analysis of the whole limit order book (LOB) dynamics. We model the LOB as a multiclass queueing system and perform our…
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 propose a framework for studying optimal market making policies in a limit order book (LOB). The bid-ask spread of the LOB is modelled by a Markov chain with finite values, multiple of the tick size, and subordinated by the Poisson…