A continuous and efficient fundamental price on the discrete order book grid

Bonart, Julius; Lillo, Fabrizio

doi:10.1016/j.physa.2018.03.002

Cited by 3 publications

(4 citation statements)

References 46 publications

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“…Technical details, further empirical analyses and an extended version of the model are presented in the supporting information sections. By submitting an order, traders pledge to sell (buy) up to a certain quantity of a given asset for a price that is greater (less) than or equal to its limit price [2,54]. The submission activates a trade-matching algorithm which determines whether the order can be immediately matched against earlier orders that are still queued in the LOB [54].…”

Section: Competing Interestsmentioning

confidence: 99%

“…By submitting an order, traders pledge to sell (buy) up to a certain quantity of a given asset for a price that is greater (less) than or equal to its limit price [2,54]. The submission activates a trade-matching algorithm which determines whether the order can be immediately matched against earlier orders that are still queued in the LOB [54]. A matching occurs anytime a buy (sell) order includes a price that is greater (less) than or equal to the one included in a sell (buy) order.…”

Section: Competing Interestsmentioning

confidence: 99%

“…Orders that are completely matched upon entering into the system are called market orders. Conversely, orders that are partially matched or completely unmatched upon entering into the system (i.e., limit orders) are queued in the LOB until they are completely matched by forthcoming orders or deleted by their owners [54].…”

Section: Competing Interestsmentioning

confidence: 99%

“…As a result, exchanges adopt an additional rule to prioritize the execution of orders bearing the same price. A very common scheme is the pricetime priority rule which uses the submission time to set the priority among limit orders occupying the same price level, i.e., the order that entered the LOB earlier is executed first [54].…”

Section: Conceptsmentioning

confidence: 99%

See 3 more Smart Citations

The microscopic relationships between triangular arbitrage and cross-currency correlations in a simple agent based model of foreign exchange markets

et al. 2020

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Foreign exchange rates movements exhibit significant cross-correlations even on very short timescales. The effect of these statistical relationships become evident during extreme market events, such as flash crashes. Although a deep understanding of cross-currency correlations would be clearly beneficial for conceiving more stable and safer foreign exchange markets, the microscopic origins of these interdependencies have not been extensively investigated. This paper introduces an agent-based model which describes the emergence of cross-currency correlations from the interactions between market makers and an arbitrager. The model qualitatively replicates the timescale vs. cross-correlation diagrams observed in real trading data, suggesting that triangular arbitrage plays a primary role in the entanglement of the dynamics of different foreign exchange rates. Furthermore, the model shows how the features of the cross-correlation function between two foreign exchange rates, such as its sign and value, emerge from the interplay between triangular arbitrage and trend-following strategies. In particular, the interaction of these trading strategies favors certain combinations of price trend signs across markets, thus altering the probability of observing two foreign exchange rates drifting in the same or opposite direction. Ultimately, this entangles the dynamics of foreign exchange rate pairs, leading to cross-correlation functions that resemble those observed in real trading data.

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Section: Competing Interestsmentioning

confidence: 99%

Section: Competing Interestsmentioning

confidence: 99%

Section: Competing Interestsmentioning

confidence: 99%

Section: Conceptsmentioning

confidence: 99%

See 2 more Smart Citations

The microscopic relationships between triangular arbitrage and cross-currency correlations in a simple agent based model of foreign exchange markets

et al. 2020

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Market price determination: Interpreting quote order imbalance under zero-profit equilibrium

Long,

Yan,

et al. 2024

Economic Modelling

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Deep learning for limit order books

Sirignano

2018

Quantitative Finance

114

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This paper develops a new neural network architecture for modeling spatial distributions (i.e., distributions on R d ) which is computationally efficient and specifically designed to take advantage of the spatial structure of limit order books. The new architecture yields a low-dimensional model of price movements deep into the limit order book, allowing more effective use of information from deep in the limit order book (i.e., many levels beyond the best bid and best ask). This "spatial neural network" models the joint distribution of the state of the limit order book at a future time conditional on the current state of the limit order book. The spatial neural network outperforms status quo models such as the naive empirical model, logistic regression (with nonlinear features), and a standard neural network architecture.Both neural networks strongly outperform the logistic regression model. Due to its more effective use of information deep in the limit order book, the spatial neural network especially outperforms the standard neural network in the tail of the distribution, which is important for risk management applications. The models are trained and tested on nearly 500 U.S. stocks. Techniques from deep learning such as dropout are employed to improve performance. Due to the significant computational challenges associated with the large amount of data, models are trained with a cluster of 50 GPUs. Our data-driven approach offers

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A continuous and efficient fundamental price on the discrete order book grid

Cited by 3 publications

References 46 publications

The microscopic relationships between triangular arbitrage and cross-currency correlations in a simple agent based model of foreign exchange markets

The microscopic relationships between triangular arbitrage and cross-currency correlations in a simple agent based model of foreign exchange markets

Market price determination: Interpreting quote order imbalance under zero-profit equilibrium

Deep learning for limit order books

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