Advanced Search
MyIDEAS: Login

"Market making" behaviour in an order book model and its impact on the bid-ask spread

Contents:

Author Info

  • Ioane Muni Toke
Registered author(s):

    Abstract

    It has been suggested that marked point processes might be good candidates for the modelling of financial high-frequency data. A special class of point processes, Hawkes processes, has been the subject of various investigations in the financial community. In this paper, we propose to enhance a basic zero-intelligence order book simulator with arrival times of limit and market orders following mutually (asymmetrically) exciting Hawkes processes. Modelling is based on empirical observations on time intervals between orders that we verify on several markets (equity, bond futures, index futures). We show that this simple feature enables a much more realistic treatment of the bid-ask spread of the simulated order book.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://arxiv.org/pdf/1003.3796
    File Function: Latest version
    Download Restriction: no

    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1003.3796.

    as in new window
    Length:
    Date of creation: Mar 2010
    Date of revision: Jun 2010
    Handle: RePEc:arx:papers:1003.3796

    Contact details of provider:
    Web page: http://arxiv.org/

    Related research

    Keywords:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. BAUWENS, Luc & HAUTSCH, Nikolaus, 2006. "Modelling financial high frequency data using point processes," CORE Discussion Papers 2006080, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Rama Cont & Jean-Philippe Bouchaud, 1997. "Herd behavior and aggregate fluctuations in financial markets," Science & Finance (CFM) working paper archive 500028, Science & Finance, Capital Fund Management.
    3. Clive G. Bowsher, 2005. "Modelling Security Market Events in Continuous Time: Intensity Based, Multivariate Point Process Models," Economics Papers 2005-W26, Economics Group, Nuffield College, University of Oxford.
    4. Cont, Rama & Bouchaud, Jean-Philipe, 2000. "Herd Behavior And Aggregate Fluctuations In Financial Markets," Macroeconomic Dynamics, Cambridge University Press, vol. 4(02), pages 170-196, June.
    5. Large, Jeremy, 2007. "Measuring the resiliency of an electronic limit order book," Journal of Financial Markets, Elsevier, vol. 10(1), pages 1-25, February.
    6. Hall, Anthony D. & Hautsch, Nikolaus, 2007. "Modelling the buy and sell intensity in a limit order book market," Journal of Financial Markets, Elsevier, vol. 10(3), pages 249-286, August.
    7. Biais, Bruno & Hillion, Pierre & Spatt, Chester, 1995. " An Empirical Analysis of the Limit Order Book and the Order Flow in the Paris Bourse," Journal of Finance, American Finance Association, vol. 50(5), pages 1655-89, December.
    8. Engle, Robert F. & Russell, Jeffrey R., 1997. "Forecasting the frequency of changes in quoted foreign exchange prices with the autoregressive conditional duration model," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 187-212, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:arx:papers:1003.3796. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.