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An Analysis Of The Supply Curve For Liquidity Risk Through Book Data

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Author Info

  • MARCEL BLAIS

    (Department of Mathematical Sciences, Worcester Polytechnic Institute, Worcester, MA, 01609-2280, USA)

  • PHILIP PROTTER

    ()
    (School of Operations Research, Cornell University, Ithaca, NY, 14853-3801, USA)

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    Abstract

    We use order book data combined with tick data to analyze the supply curve models of liquidity issues in stock and option market trading. We show that supply curves really exist, and further that for highly liquid stocks they are linear. For slightly less liquid stocks the supply curve tends to be jump linear.

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    Bibliographic Info

    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.

    Volume (Year): 13 (2010)
    Issue (Month): 06 ()
    Pages: 821-838

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    Handle: RePEc:wsi:ijtafx:v:13:y:2010:i:06:p:821-838

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    Related research

    Keywords: Liquidity risk; supply curve; hedging risk; semimartingale; arbitrage; option;

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    Cited by:
    1. Alexandre Roch, 2011. "Liquidity risk, price impacts and the replication problem," Finance and Stochastics, Springer, vol. 15(3), pages 399-419, September.
    2. Christopher Lorenz & Alexander Schied, 2013. "Drift dependence of optimal trade execution strategies under transient price impact," Finance and Stochastics, Springer, vol. 17(4), pages 743-770, October.
    3. Samuel N. Cohen & Lukasz Szpruch, 2011. "A limit order book model for latency arbitrage," Science & Finance (CFM) working paper archive 1110.4811, Science & Finance, Capital Fund Management.
    4. Marcel Blais & Philip Protter, 2012. "Signing trades and an evaluation of the Lee–Ready algorithm," Annals of Finance, Springer, vol. 8(1), pages 1-13, February.

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