A weak law of large numbers for a limit order book model with fully state dependent order dynamics

DOI10.1137/15M1024226MaRDI QIDQ5266362zbMATH OpenFDO

Authors Ulrich Horst, Dörte Kreher

Publication date 2 June 2017

Published in SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1502.04359

zbMATH Keywords

fixed point iterationlimit order bookmarket microstructureweak law of large numbershigh frequency limit

Mathematics Subject Classification ID

Central limit and other weak theorems (60F05) Stochastic models in economics (91B70)

Abstract: This paper studies a limit order book (LOB) model, in which the order dynamics depend on both, the current best available prices and the current volume density functions. For the joint dynamics of the best bid price, the best ask price, and the standing volume densities on both sides of the LOB we derive a weak law of large numbers, which states that the LOB model converges to a continuous-time limit when the size of an individual order as well as the tick size tend to zero and the order arrival rate tends to infinity. In the scaling limit the two volume densities follow each a non-linear PDE coupled with two non-linear ODEs that describe the best bid and ask price.

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Cites work

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Cited in

(13)

• HYDRODYNAMIC LIMIT OF ORDER-BOOK DYNAMICS
• Limits of Limit-Order Books
• ON BOUNCING GEOMETRIC BROWNIAN MOTIONS
• A functional limit theorem for limit order books with state dependent price dynamics
• Scaling limit of a limit order book model via the regenerative characterization of Lévy trees
• Second order approximations for limit order books
• Jump Diffusion Approximation for the Price Dynamics of a Fully State Dependent Limit Order Book Model
• Solutions of mixed-type functional differential equations with state-dependence
• Positive solutions of iterative functional differential equations and application to mixed-type functional differential equations
• A Law of Large Numbers for Limit Order Books
• A scaling limit for limit order books driven by Hawkes processes
• A diffusion approximation for limit order book models
• Optimal placement in a limit order book: an analytical approach

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