STATIONARY DISTRIBUTION OF THE VOLUME AT THE BEST QUOTE IN A POISSON ORDER BOOK MODEL

Ioane Muni Toke ()
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Ioane Muni Toke: MICS Laboratory & Chair of Quantitative Finance, CentraleSupelec, 3 rue Joliot Curie, F-91190 Gif-sur-Yvette, France

International Journal of Theoretical and Applied Finance (IJTAF), 2017, vol. 20, issue 06, 1-22

Abstract: We develop a Markovian model that deals with the volume offered at the best quote of an electronic order book. The volume of the first limit is a stochastic process whose paths are periodically interrupted and reset to a new value, either by a new limit order submitted inside the spread or by a market order that removes the first limit. Using applied probability results on killing and resurrecting Markov processes, we derive the stationary distribution of the volume offered at the best quote. All proposed models are empirically fitted and compared, stressing the importance of the proposed mechanisms.

Keywords: Limit order book; volume of the best quote; aggressive limit orders; aggressive market orders; killing and resurrecting Markov processes (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1142/S021902491750039X

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