Modelling Limit Order Financial Markets
Financial markets are collective systems with out of equilibrium stochastic dynamics. Of these, the simplest is the limit order market, where an order book records placement and removal of orders to buy or sell, and their settlement. Such systems can be modelled by regarding the orders as depositing, evaporating or annihilating, at prescribed rates, on a price axis. The construction and analysis of such models and their properties and limitations will be discussed here, starting from available electronic temporal limit order market data. This makes it possible to infer the stochastic dynamic processes which operate in real markets and how their rates are connected between themselves and to the market condition. Analytic analysis for steady state profiles and price evolution of such models will be outlined. A concluding discussion reviews the work and raises further issues.
KeywordsLimit Order Order Book Order Size Volatility Cluster Minority Game
Unable to display preview. Download preview PDF.
- 1.See e.g. Varian HR (2002) Intermediate Microeconomics. 6 ed, Norton, New YorkGoogle Scholar
- 2.Bouchaud JP, Potters M (2000) Theory of Financial Risks, Cambridge University Press, CambridgeGoogle Scholar
- 5.van Kampen NG (1992) Stochastic Processes in Physics and Chemistry, Elsevier, AmsterdamGoogle Scholar
- 9.Eliezer D, Kogan II (1999) Capital Markets Abstracts, Market Microstructure 2:3; Chan DLC, Eliezer D, Kogan II (2001) eprint cond-mat/0101474Google Scholar
- 23.Challet D, http://www.unifr.ch/econophysics/minorityGoogle Scholar
- 24.Raffaelli G, Marsili M, e-print physics/0508159Google Scholar