Price-Time Priority and Pro Rata Matching in an Order Book Model of Financial Markets
Using our recently introduced order book model of financial markets we analyzed two different matching principles for order allocation — price-time priority and pro rata matching. Price-time priority uses the submission timestamp which prioritizes orders in the book with the same price. The order which was entered earliest at a given price limit gets executed first. Pro rata matching is used for products with low intraday volatility of best bid and best ask price. Pro rata matching ensures constant access for orders of all sizes. We demonstrate how a multiagent-based model of financial market can be used to study microscopic aspects of order books.
KeywordsLimit Order Rata Match Monte Carlo Step Order Book Limit Price
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