English

Equilibrium Pricing in an Order Book Environment: Case Study for a Spin Model

Computational Finance 2016-04-20 v1 Trading and Market Microstructure

Abstract

When modelling stock market dynamics, the price formation is often based on an equilbrium mechanism. In real stock exchanges, however, the price formation is goverend by the order book. It is thus interesting to check if the resulting stylized facts of a model with equilibrium pricing change, remain the same or, more generally, are compatible with the order book environment. We tackle this issue in the framework of a case study by embedding the Bornholdt-Kaizoji-Fujiwara spin model into the order book dynamics. To this end, we use a recently developed agent based model that realistically incorporates the order book. We find realistic stylized facts. We conclude for the studied case that equilibrium pricing is not needed and that the corresponding assumption of a "fundamental" price may be abandoned.

Keywords

Cite

@article{arxiv.1502.01125,
  title  = {Equilibrium Pricing in an Order Book Environment: Case Study for a Spin Model},
  author = {Frederik Meudt and Thilo A. Schmitt and Rudi Schäfer and Thomas Guhr},
  journal= {arXiv preprint arXiv:1502.01125},
  year   = {2016}
}

Comments

15 pages, 3 figures

R2 v1 2026-06-22T08:21:37.570Z