Price Formation in an Artificial Market: Limit Order Book Versus Matching of Supply and Demand

Marco Raberto, Silvano Cincotti (), Christian Dose (), Sergio M. Focardi () and Michele Marchesi ()
Additional contact information
Silvano Cincotti: DIBE, Università di Genova
Christian Dose: DIBE, Università di Genova
Sergio M. Focardi: The Intertek Group
Michele Marchesi: DIEE, Università di Cagliari, Piazza d'Armi

A chapter in Nonlinear Dynamics and Heterogeneous Interacting Agents, 2005, pp 305-315 from Springer

Abstract: Summary In this paper, we present an extension of the Genoa artificial stock market (GASM) (Raberto et al., 2001) that includes a limit order book as mechanism for price formation. At every time step an agent is chosen with uniform distribution to issue an order. The order can be a limit order or a market order. If the order is a limit order, it is stored in the book; if the order is a market order, a transaction occurs. Prices are formed at variable time steps, i.e., only when a market order is issued. We investigate how the new asynchronous trading mechanism affects the statistical properties of simulated prices. This computational experiment shows that the fat tails of the returns distribution can be recovered simply as a consequence of the limit order book without any additional assumption on agents' behavior.

Keywords: Limit Order; Order Book; Wait Time Distribution; Limit Price; Market Order (search for similar items in EconPapers)
Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (6)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:spr:lnechp:978-3-540-27296-0_20

Ordering information: This item can be ordered from
http://www.springer.com/9783540272960

DOI: 10.1007/3-540-27296-8_20

Access Statistics for this chapter

More chapters in Lecture Notes in Economics and Mathematical Systems from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().