Ergodicity and diffusivity of Markovian order book models: a general framework
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Abstract: 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 features of financial assets. To do so, we propose a new method of order book representation, and decompose the problem of order book modeling into two sub-problems: dynamics of a continuous-time double auction system with a fixed reference price; interactions between the double auction system and the reference price movements. State dependency is included in our framework by allowing the order flow intensities to depend on the order book state. Furthermore, contrary to most existing models, the impact of the order book updates on the reference price dynamics is not assumed to be instantaneous. We first prove that under general assumptions, our system is ergodic. Then we deduce the convergence towards a Brownian motion of the rescaled price process.
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Cites work
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Cited in
(17)- Second order approximations for limit order books
- Exact Hurst exponent and crossover behavior in a limit order market model
- A diffusion approximation for limit order book models
- From tick data to semimartingales
- Statistical inference for ergodic point processes and application to limit order book
- A mathematical approach to order book modeling
- Modelling intensities of order flows in a limit order book
- Econophysics of order-driven markets. Proceedings of the 5th Econophys-Kolkata conference, Kolkata, India, March 2010
- Optimal inventory management and order book modeling
- State-dependent Hawkes processes and their application to limit order book modelling
- Optimal liquidity-based trading tactics
- A weak law of large numbers for a limit order book model with fully state dependent order dynamics
- Jump Diffusion Approximation for the Price Dynamics of a Fully State Dependent Limit Order Book Model
- A generative model of a limit order book using recurrent neural networks
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- Simulating and analyzing a sparse order book: an application to intraday electricity markets
- Multi-dimensional queue-reactive model and signal-driven models: a unified framework
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