An Agent‐Based model for Limit Order Book: Estimation and simulation

Mohammad Zare, Omid Naghshineh Arjmand, Erfan Salavati and Adel Mohammadpour

International Journal of Finance & Economics, 2021, vol. 26, issue 1, 1112-1121

Abstract: In this article, we introduce an agent‐based model for a Limit Order Book (LOB) market with a price limit and simulate and estimate its parameters. In this framework, we have reached a linear relation between the percentage of the sellers in the market and the changes in the logarithm of the price. Moreover, we demonstrate that in this model if the supply and demand are equal and naturally if the demand is more than the supply, on the average, logarithm of the price strictly increases and this occurs while in the model argued, the inflation is assumed to be zero, no real factor exists in order to increase the value of stocks and no factor‐like rumors enters. This conclusion implies that merely the normal activities of the dealers to gain profit causes a false increase in the stock price. This fact, as being demonstrated in the simulation, has also been proved analytically. We call this phenomenon “the intrinsic bubble”. Finally, we show that if the rules of the market change in the way that the daily price of the stock is calculated by the median of the prices traded, instead of their mean, this intrinsic bubble will more or less disappear.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1002/ijfe.1839

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:ijfiec:v:26:y:2021:i:1:p:1112-1121

Ordering information: This journal article can be ordered from
http://jws-edcv.wile ... PRINT_ISSN=1076-9307

Access Statistics for this article

International Journal of Finance & Economics is currently edited by Mark P. Taylor, Keith Cuthbertson and Michael P. Dooley

More articles in International Journal of Finance & Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().