A multi-agent nonlinear Markov model of the order book
AbstractWe introduce and treat rigorously a new multi-agent model of the order book (OB). Our model is designed to explain a collective behavior of the market when new information affecting the market arrives. Our model has two major features. First, it captures interaction between trading agents and constitutes a nonlinear Markov process. Second, it exhibits long term correlations. The model has two additional parameters which we call slow parameters. These parameters measure mood of two groups of investors, namely, bulls and bears. We explain the intuition behind the equations and present numerical simulations which show that behavior of the model is similar to the behavior of the real market. All proofs concerning existence of the process and its convergence to equilibrium are given in technical paper .
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1208.3083.
Date of creation: Aug 2012
Date of revision: Jun 2013
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-08-23 (All new papers)
- NEP-CMP-2012-08-23 (Computational Economics)
- NEP-MST-2012-08-23 (Market Microstructure)
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- Anirban Chakraborti & Ioane Muni Toke & Marco Patriarca & Frederic Abergel, 2011. "Econophysics review: II. Agent-based models," Quantitative Finance, Taylor and Francis Journals, vol. 11(7), pages 1013-1041.
- Marco Avellaneda & Sasha Stoikov, 2008. "High-frequency trading in a limit order book," Quantitative Finance, Taylor and Francis Journals, vol. 8(3), pages 217-224.
- Ioanid Rosu, 2009. "A Dynamic Model of the Limit Order Book," Review of Financial Studies, Society for Financial Studies, vol. 22(11), pages 4601-4641, November.
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