| By: |
Rama Cont (University of Oxford);
Pierre Degond (IMT - Institut de Mathématiques de Toulouse UMR5219 - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - INSA Toulouse - Institut National des Sciences Appliquées - Toulouse - INSA - Institut National des Sciences Appliquées - Université Fédérale Toulouse Midi-Pyrénées - UT2J - Université Toulouse - Jean Jaurès - UT3 - Université Toulouse III - Paul Sabatier - Université Fédérale Toulouse Midi-Pyrénées - CNRS - Centre National de la Recherche Scientifique);
Xuan Lifan (Imperial College London) |
| Abstract: |
We present a general framework for modelling the dynamics of limit order
books, built on the combination of two modelling ingredients: the order flow,
modelled as a general spatial point process, and market clearing, modelled via
a deterministic 'mass transport' operator acting on distributions of buy and
sell orders. At the mathematical level, this corresponds to a natural
decomposition of the infinitesimal generator describing the evolution of the
limit order book into two operators: the generator of the order flow and the
clearing operator. Our model provides a flexible framework for modelling and
simulating order book dynamics and studying various scaling limits of discrete
order book models. We show that our framework includes previous models as
special cases and yields insights into the interplay between order flow and
price dynamics. |
| Keywords: |
Limit order book, stochastic model, quantitative finance, market microstructure, measurevalued process |
| Date: |
2023–02–01 |
| URL: |
http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03968767&r=mst |