A Scaling Limit for Limit Order Books Driven by Hawkes Processes

Ulrich Horst and Wei Xu

Papers from arXiv.org

Abstract: In this paper we derive a scaling limit for an infinite dimensional limit order book model driven by Hawkes random measures. The dynamics of the incoming order flow is allowed to depend on the current market price as well as on a volume indicator. With our choice of scaling the dynamics converges to a coupled SDE-ODE system where limiting best bid and ask price processes follows a diffusion dynamics, the limiting volume density functions follows an ODE in a Hilbert space and the limiting order arrival and cancellation intensities follow a Volterra-Fredholm integral equation.

Date: 2017-09, Revised 2018-08
New Economics Papers: this item is included in nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1709.01292

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