Modelling intensities of order flows in a limit order book

Abstract

We propose a parametric model for the simulation of limit order books. We assume that limit orders, market orders and cancellations are submitted according to point processes with state-dependent intensities. We propose new functional forms for these intensities, as well as new models for the placement of limit orders and cancellations. For cancellations, we introduce the concept of "priority index" to describe the selection of orders to be cancelled in the order book. Parameters of the model are estimated using likelihood maximization. We illustrate the performance of the model by providing extensive simulation results, with a comparison to empirical data and a standard Poisson reference.

arXiv comment30 pages, 15 figures, 4 tables

References in corpus (5)

• Statistical theory of the continuous double auction
• Analyzing and modelling 1+1d markets
• "Market making" behaviour in an order book model and its impact on the bid-ask spread
• The order book as a queueing system: average depth and influence of the size of limit orders
• Ergodicity and diffusivity of Markovian order book models: a general framework

Cited by in corpus (5)

• Analyzing order flows in limit order books with ratios of Cox-type intensities
• Marked point processes and intensity ratios for limit order book modeling
• Stationary distribution of the volume at the best quote in a Poisson order book model
• Spread, volatility, and volume relationship in financial markets and market making profit optimization
• Confidence interval for correlation estimator between latent processes