A mathematical formulation of order cancellation for the agent-based modelling of financial markets

Yushi Yoshimura, Hiroshi Okuda and Yu Chen

Physica A: Statistical Mechanics and its Applications, 2020, vol. 538, issue C

Abstract: It is well known that the distribution of lifetimes of orders obeys the power-law in the stock markets. However, to the authors’ knowledge, few agent-based models (ABM) could reproduce this phenomenon yet. In this study, we propose a model aiming at the recovery of this power-law scaling. Under the assumption that traders decide to submit cancellation orders relying on their waiting time, a mathematical formulation of order cancellation is obtained in the balance state. With this formulation, simulation results agree well with the theoretical derivation.

Keywords: Financial market; Agent-based model; Order book statistics; Order cancellation; Power-law distribution (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:538:y:2020:i:c:s0378437119314372

DOI: 10.1016/j.physa.2019.122507

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