Exact Hurst exponent and crossover behavior in a limit order market model

R.d Willmann, G.m Schütz and Damien Challet

Physica A: Statistical Mechanics and its Applications, 2002, vol. 316, issue 1, 430-440

Abstract: An exclusion particle model is considered as a highly simplified model of a limit order market. Its price behavior reproduces the well-known crossover from over-diffusion (Hurst exponent H>12) to diffusion (H=12) when the time horizon is increased, provided that orders are allowed to be canceled. For early times a mapping to the totally asymmetric exclusion process yields the exact result H=23 which is in good agreement with empirical data. The underlying universality class of the exclusion process suggests some robustness of the exponent with respect to changes in the trading rules. In the crossover regime the Hurst plot has a scaling property where the bulk deposition/cancelation rate is the critical parameter. Analytical results are fully supported by numerical simulations.

Keywords: Limit order market; Hurst exponent; KPZ equation; Asymmetric exclusion process (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (5)

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Working Paper: Exact Hurst exponent and crossover behavior in a limit order market model (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:316:y:2002:i:1:p:430-440

DOI: 10.1016/S0378-4371(02)01217-7

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