High-Resilience Limits of Block-Shaped Order Books

Jan Kallsen and Johannes Muhle-Karbe
Additional contact information
Jan Kallsen: Munich University of Technology
Johannes Muhle-Karbe: ETH Zurich and Swiss Finance Institute

No 14-72, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We show that wealth processes in the block-shaped order book model of Obizhaeva/Wang converge to their counterparts in the reduced-form model proposed by Almgren/Chriss, as the resilience of the order book tends to infinity. As an application of this limit theorem, we explain how to reduce portfolio choice in highly-resilient Obizhaeva/Wang models to the corresponding problem in an Almgren/Chriss setup with small quadratic trading costs.

Keywords: Limit order books; price impact; high-resilience limit (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2014-09
New Economics Papers: this item is included in nep-cse and nep-mst
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1472

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