Market Impact in a Latent Order Book

Ismael Lemhadri

Papers from arXiv.org

Abstract: The latent order book of \cite{donier2015fully} is one of the most promising agent-based models for market impact. This work extends the minimal model by allowing agents to exhibit mean-reversion, a commonly observed pattern in real markets. This modification leads to new order book dynamics, which we explicitly study and analyze. Underlying our analysis is a mean-field assumption that views the order book through its \textit{average} density. We show how price impact develops in this new model, providing a flexible family of solutions that can potentially improve calibration to real data. While no closed-form solution is provided, we complement our theoretical investigation with extensive numerical results, including a simulation scheme for the entire order book.

Date: 2018-02, Revised 2020-09
New Economics Papers: this item is included in nep-hme and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Market Microstructure and Liquidity 2020

Downloads: (external link)
http://arxiv.org/pdf/1802.06101 Latest version (application/pdf)

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:arx:papers:1802.06101

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().