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Conservation Laws in a Limit Order Book

Jan Rosenzweig

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Abstract: We present a class of macroscopic models of the Limit Order Book to simulate the aggregate behaviour of market makers in response to trading flows. The resulting models are solved numerically and asymptotically, and a class of similarity solutions linked to order book formation and recovery is explored. The main result is that order book recovery from aggressive liquidity taking follows a simple $t^{1/3}$ scaling law.

Date: 2019-10, Revised 2020-12
New Economics Papers: this item is included in nep-mst
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Handle: RePEc:arx:papers:1910.09202