Blog
About

31
views
0
recommends
+1 Recommend
0 collections
    0
    shares
      • Record: found
      • Abstract: found
      • Article: found
      Is Open Access

      The order book as a queueing system: average depth and influence of the size of limit orders

      Preprint

      Read this article at

      Bookmark
          There is no author summary for this article yet. Authors can add summaries to their articles on ScienceOpen to make them more accessible to a non-specialist audience.

          Abstract

          We study the analytical properties of a one-side order book model in which the flows of limit and market orders are Poisson processes and the distribution of lifetimes of cancelled orders is exponential. Although simplistic, the model provides an analytical tractability that should not be overlooked. Using basic results for birth-and-death processes, we build an analytical formula for the shape (depth) of a continuous order book model which is both founded by market mechanisms and very close to empirically tested formulas. We relate this shape to the probability of execution of a limit order, highlighting a law of conservation of the flows of orders in an order book. We then extend our model by allowing random sizes of limit orders, hereby allowing to study the relationship between the size of the incoming limit orders and the shape of the order book. Our theoretical model shows that, for a given total volume of incoming limit orders, the less limit orders are submitted (i.e. the larger the average size of these limit orders), the deeper is the order book around the spread. This theoretical relationship is finally empirically tested on several stocks traded on the Paris stock exchange.

          Related collections

          Most cited references 17

          • Record: found
          • Abstract: not found
          • Article: not found

          A Stochastic Model for Order Book Dynamics

            Bookmark
            • Record: found
            • Abstract: not found
            • Article: not found

            Optimal execution strategies in limit order books with general shape functions

              Bookmark
              • Record: found
              • Abstract: not found
              • Article: not found

              Econophysics review: I. Empirical facts

                Bookmark

                Author and article information

                Journal
                22 November 2013
                Article
                1311.5661

                http://arxiv.org/licenses/nonexclusive-distrib/1.0/

                Custom metadata
                q-fin.TR q-fin.ST

                Statistical finance, Trading & Market microstructure

                Comments

                Comment on this article