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on Market Microstructure |
| By: | Nicolas Baradel (CEREMADE, ENSAE); Bruno Bouchard (CEREMADE, PSL); David Evangelista (KAUST); Othmane Mounjid (CMAP) |
| Abstract: | We model the behavior of three agent classes acting dynamically in a limit order book of a financial asset. Namely, we consider market makers (MM), high-frequency trading (HFT) firms, and institutional brokers (IB). Given a prior dynamic of the order book, similar to the one considered in the Queue-Reactive models [14, 20, 21], the MM and the HFT define their trading strategy by optimizing the expected utility of terminal wealth, while the IB has a prescheduled task to sell or buy many shares of the considered asset. We derive the variational partial differential equations that characterize the value functions of the MM and HFT and explain how almost optimal control can be deduced from them. We then provide a first illustration of the interactions that can take place between these different market participants by simulating the dynamic of an order book in which each of them plays his own (optimal) strategy. |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1802.08135&r=mst |
| By: | Teruyoshi Kobayashi; Anna Sapienza; Emilio Ferrara |
| Abstract: | Online financial markets can be represented as complex systems where trading dynamics can be captured and characterized at different resolutions and time scales. In this work, we develop a methodology based on non-negative tensor factorization (NTF) aimed at extracting and revealing the multi-timescale trading dynamics governing online financial systems. We demonstrate the advantage of our strategy first using synthetic data, and then on real-world data capturing all interbank transactions (over a million) occurred in an Italian online financial market (e-MID) between 2001 and 2015. Our results demonstrate how NTF can uncover hidden activity patterns that characterize groups of banks exhibiting different trading strategies (normal vs. early vs. flash trading, etc.). We further illustrate how our methodology can reveal "crisis modalities" in trading triggered by endogenous and exogenous system shocks: as an example, we reveal and characterize trading anomalies in the midst of the 2008 financial crisis. |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1802.07405&r=mst |
| By: | Clapham, Benjamin; Gomber, Peter; Haferkorn, Martin; Panz, Sven |
| Abstract: | We investigate different designs of circuit breakers implemented on European trading venues and examine their effectiveness to manage excess volatility and to preserve liquidity. Specifically, we empirically analyze volatility and liquidity around volatility interruptions implemented on the German and Spanish stock market which differ regarding specific design parameters. We find that volatility interruptions in general significantly decrease volatility in the post interruption phase. Unfortunately, this decrease in volatility comes at the cost of decreased liquidity. Regarding design parameters, we find tighter price ranges and shorter durations to support volatility interruptions in achieving their goals. |
| Keywords: | Circuit Breaker,Volatility Interruption,Volatility,Liquidity,Market Design |
| JEL: | G14 G15 G18 G28 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:195&r=mst |