nep-mst New Economics Papers
on Market Microstructure
Issue of 2021‒10‒11
four papers chosen by
Thanos Verousis

  1. Non-average price impact in order-driven markets By Claudio Bellani
  2. Learning to Classify and Imitate Trading Agents in Continuous Double Auction Markets By Mahmoud Mahfouz; Tucker Balch; Manuela Veloso; Danilo Mandic
  3. Concentrated Liquidity in Automated Market Makers By Robin Fritsch
  4. A Method for Predicting VaR by Aggregating Generalized Distributions Driven by the Dynamic Conditional Score By Shijia Song; Handong Li

  1. By: Claudio Bellani
    Abstract: We present a measurement of price impact in order-driven markets that does not require averages across executions or scenarios. Given the order book data associated with one single execution of a sell metaorder, we measure its contribution to price decrease during the trade. We do so by modelling the limit order book using state-dependent Hawkes processes, and by defining the price impact profile of the execution as a function of the compensator of a stochastic process in our model. We apply our measurement to a data set from NASDAQ, and we conclude that the clustering of sell child orders has a bigger impact on price than their sizes.
    Date: 2021–10
  2. By: Mahmoud Mahfouz; Tucker Balch; Manuela Veloso; Danilo Mandic
    Abstract: Continuous double auctions such as the limit order book employed by exchanges are widely used in practice to match buyers and sellers of a variety of financial instruments. In this work, we develop an agent-based model for trading in a limit order book and show (1) how opponent modelling techniques can be applied to classify trading agent archetypes and (2) how behavioural cloning can be used to imitate these agents in a simulated setting. We experimentally compare a number of techniques for both tasks and evaluate their applicability and use in real-world scenarios.
    Date: 2021–10
  3. By: Robin Fritsch
    Abstract: We examine how the introduction of concentrated liquidity has changed the liquidity provision market in automated market makers such as Uniswap. To this end, we compare average liquidity provider returns from trading fees before and after its introduction. Furthermore, we quantify the performance of a number of fundamental concentrated liquidity strategies using historical trade data. We estimate their possible returns and evaluate which perform best for certain trading pairs and market conditions.
    Date: 2021–10
  4. By: Shijia Song; Handong Li
    Abstract: Constructing a more effective value at risk (VaR) prediction model has long been a goal in financial risk management. In this paper, we propose a novel parametric approach and provide a standard paradigm to demonstrate the modeling. We establish a dynamic conditional score (DCS) model based on high-frequency data and a generalized distribution (GD), namely, the GD-DCS model, to improve the forecasts of daily VaR. The model assumes that intraday returns at different moments are independent of each other and obey the same kind of GD, whose dynamic parameters are driven by DCS. By predicting the motion law of the time-varying parameters, the conditional distribution of intraday returns is determined; then, the bootstrap method is used to simulate daily returns. An empirical analysis using data from the Chinese stock market shows that Weibull-Pareto -DCS model incorporating high-frequency data is superior to traditional benchmark models, such as RGARCH, in the prediction of VaR at high risk levels, which proves that this approach contributes to the improvement of risk measurement tools.
    Date: 2021–10

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