Statistical theory of the continuous double auction
From MaRDI portal
Publication:4647293
Abstract: Most modern financial markets use a continuous double auction mechanism to store and match orders and facilitate trading. In this paper we develop a microscopic dynamical statistical model for the continuous double auction under the assumption of IID random order flow, and analyze it using simulation, dimensional analysis, and theoretical tools based on mean field approximations. The model makes testable predictions for basic properties of markets, such as price volatility, the depth of stored supply and demand vs. price, the bid-ask spread, the price impact function, and the time and probability of filling orders. These predictions are based on properties of order flow and the limit order book, such as share volume of market and limit orders, cancellations, typical order size, and tick size. Because these quantities can all be measured directly there are no free parameters. We show that the order size, which can be cast as a nondimensional granularity parameter, is in most cases a more significant determinant of market behavior than tick size. We also provide an explanation for the observed highly concave nature of the price impact function. On a broader level, this work suggests how stochastic models based on zero-intelligence agents may be useful to probe the structure of market institutions. Like the model of perfect rationality, a stochastic-zero intelligence model can be used to make strong predictions based on a compact set of assumptions, even if these assumptions are not fully believable.
Recommendations
Cites work
- scientific article; zbMATH DE number 2067988 (Why is no real title available?)
- scientific article; zbMATH DE number 3190967 (Why is no real title available?)
- A simulation analysis of the microstructure of double auction markets
- Analyzing and modeling 1+1d markets
- Auctions as algorithms. Computerized trade execution and price discovery
- Introduction to Econophysics
- Market Behavior in a Clearing House
- On the origin of power-law fluctuations in stock prices
- Order flow and the bid-ask spread: an empirical probability model of screen-based trading
- Price fluctuations from the order book perspective - empirical facts and a simple model
- Statistical properties of stock order books: empirical results and models
- The power of patience: a behavioural regularity in limit-order placement
Cited in
(59)- Bid-ask spread dynamics: large upward jump with geometric catastrophes
- Exact solution to a generalised Lillo-Mike-Farmer model with heterogeneous order-splitting strategies
- Non-uniformly sampled simulated price impact of an order-book
- A model of returns for the post-credit-crunch reality: hybrid Brownian motion with price feedback
- Exact solution to two-body financial dealer model: revisited from the viewpoint of kinetic theory
- Confidence interval for correlation estimator between latent processes
- Statistical inference for ergodic point processes and application to limit order book
- How does latent liquidity get revealed in the limit order book?
- Microstructure-based order placement in a continuous double auction agent based model
- Classical statistics as a theory of incentives
- Ergodicity and diffusivity of Markovian order book models: a general framework
- A level-1 limit order book with time dependent arrival rates
- Modeling dynamic sealed-offer \(k\)-double auctions using a mixture of distributions
- Tick size, price grids and market performance: stable matches as a model of market dynamics and equilibrium
- Particle-scale modelling of financial price dynamics
- A simulation analysis of the microstructure of double auction markets
- When does inequality freeze an economy?
- Investor's sentiment in multi-agent model of the continuous double auction
- From Walras' auctioneer to continuous time double auctions: a general dynamic theory of supply and demand
- What really causes large price changes?
- A stochastic partial differential equation model for limit order book dynamics
- Optimal inventory management and order book modeling
- High-dimensional Hawkes processes for limit order books: modelling, empirical analysis and numerical calibration
- Modelling intensities of order flows in a limit order book
- Optimal auction duration: a price formation viewpoint
- Price dynamics in an order-driven market with Bayesian learning
- Analysis of short-term price behavior under continuous double auction mechanism
- Estimation of zero-intelligence models by L1 data
- Functional Limit Theorems for a Simple Auction
- A stochastic Stefan-type problem under first-order boundary conditions
- Probabilistic properties of the continuous double auction
- A steady-state model of the continuous double auction
- Long-time behavior of a Hawkes process-based limit order book
- Optimal liquidity-based trading tactics
- A fully consistent, minimal model for nonlinear market impact
- On the origin of power-law tails in price fluctuations
- Stationary distribution of the volume at the best quote in a Poisson order book model
- Order execution probability and order queue in limit order markets
- Disentangling and quantifying market participant volatility contributions
- High frequency trading strategies, market fragility and price spikes: an agent based model perspective
- Price impact of large orders using Hawkes processes
- The order book as a queueing system: average depth and influence of the size of limit orders
- Analysis and modeling of client order flow in limit order markets
- From zero-intelligence to queue-reactive: limit-order-book modeling for high-frequency volatility estimation and optimal execution
- An analysis of price impact function in order-driven markets
- Limits of Limit-Order Books
- A semi-Markovian modeling of limit order markets
- Clearing price distributions in call auctions
- Simple stochastic order-book model of swarm behavior in continuous double auction
- Fundamentalists clashing over the book: a study of order-driven stock markets
- Market impact with multi-timescale liquidity
- State-dependent Hawkes processes and their application to limit order book modelling
- Between complexity of modelling and modelling of complexity: an essay on econophysics
- Bias-optimal vol-of-vol estimation: the role of window overlapping
- Estimation of slowly decreasing Hawkes kernels: application to high-frequency order book dynamics
- Optimal liquidation in a level-I limit order book for large-tick stocks
- Latency and liquidity provision in a limit order book
- Endogenous liquidity crises
- Order book model with herd behavior exhibiting long-range memory
This page was built for publication: Statistical theory of the continuous double auction
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q4647293)
