A mathematical framework for modelling order book dynamics

Rama Cont, Pierre Degond and Lifan Xuan

Papers from arXiv.org

Abstract: We present a general framework for modelling the dynamics of limit order books, built on the combination of two modelling ingredients: the order flow, modelled as a general spatial point process, and market clearing, modelled via a deterministic mass transport operator acting on distributions of buy and sell orders. At the mathematical level, this corresponds to a natural decomposition of the infinitesimal generator describing the evolution of the limit order book into two operators: the generator of the order flow and the clearing operator. Our model provides a flexible framework for modelling and simulating order book dynamics and studying various scaling limits of discrete order book models. We show that our framework includes previous models as special cases and yields insights into the interplay between order flow and price dynamics.

Date: 2023-02
New Economics Papers: this item is included in nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://arxiv.org/pdf/2302.01169 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:2302.01169

Access Statistics for this paper

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