A diffusion approximation for limit order book models

DOI10.1016/J.SPA.2018.11.023MaRDI QIDQ2010486zbMATH OpenOpenAlexFDO

Authors Ulrich Horst, Dörte Kreher

Publication date 27 November 2019

Published in Stochastic Processes and their Applications (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1608.01795

zbMATH Keywords

limit order bookfunctional limit theoremscaling limitdiffusion limitconvergence of stochastic differential equations

Mathematics Subject Classification ID

Functional limit theorems; invariance principles (60F17) Financial applications of other theories (91G80)

Abstract: 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 $R_{+}$-valued best bid price process and an $L_{loc}^2$-valued volume process. It is shown that under suitable assumptions the sequence of interpolated discrete time models is relatively compact in a localized sense and that any limit point satisfies a certain infinite dimensional SDE. Under additional assumptions on the dependence structure we construct two classes of models, which fit in the general framework, such that the limiting SDE admits a unique solution and thus the discrete dynamics converge to a diffusion limit in a localized sense.

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Cited in

(19)

• HYDRODYNAMIC LIMIT OF ORDER-BOOK DYNAMICS
• Limits of Limit-Order Books
• Modelling of limit order books by general compound Hawkes processes with implementations
• A functional limit theorem for limit order books with state dependent price dynamics
• scientific article; zbMATH DE number 2187919 (Why is no real title available?)
• From tick data to semimartingales
• Limit order market analysis and modelling: on a universal cause for over-diffusive prices
• A one-level limit order book model with memory and variable spread
• Scaling limit of a limit order book model via the regenerative characterization of Lévy trees
• Modelling the shape of the limit order book
• Second order approximations for limit order books
• Jump Diffusion Approximation for the Price Dynamics of a Fully State Dependent Limit Order Book Model
• Diffusion approximation of a Poisson model for cumulative excess returns
• A mathematical approach to order book modeling
• The microstructure of stochastic volatility models with self-exciting jump dynamics
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• Limit order books, diffusion approximations and reflected SPDEs: from microscopic to macroscopic models
• A stochastic partial differential equation model for limit order book dynamics
• Ergodicity and diffusivity of Markovian order book models: a general framework

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