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SOE: Fachverband Physik sozio-ökonomischer Systeme
SOE 8: Poster
SOE 8.8: Poster
Montag, 16. März 2015, 18:00–20:00, Poster E
Effects of microscopic limit order book structure on price formation — •Winfried Sebastian Reimann, Hannes Blut, and Stephan Eule — Max-Planck-Institut für Dynamik und Selbstorganisation, Goettingen, Deutschland
Most modern financial markets nowadays employ limit order books to manage the priority of unexecuted limit orders. Analysis of large amounts of historical order book data in continuous double auction markets have discovered the dynamics to be influenced by a number of observables:
(i) Structural properties such as imbalance of orders and gap size;
(ii) order flow statistics, e.g. limit order placement and cancellation rates;
(iii) price determining quantities including spread size, and price jump distributions.
Especially the third group of observables is recognized for its essential role in execution strategies and risk estimation. Whereas past modeling has mainly aimed for reproducing the properties of prices by investigating the order flow, we focus on the effects of price gaps. These and other structural properties of the order book are expected to have a large influence on the book’s dynamics, in particular in high volatility markets. We extend the standard double auction model by Mike and Farmer1 to make predictions about the relation between gaps and price statistics and compare these to real data.
1Mike, S., Farmer, J. D., 2008. An empirical behavioral model of liquidity and volatility. J. Econ. Dyn. Control 32 (1), 200-234.