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Conservation Laws in a Limit Order Book

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  • Jan Rosenzweig

Abstract

We present a class of macroscopic models of the Limit Order Book to simulate the aggregate behaviour of market makers in response to trading flows. The resulting models are solved numerically and asymptotically, and a class of similarity solutions linked to order book formation and recovery is explored. The main result is that order book recovery from aggressive liquidity taking follows a simple $t^{1/3}$ scaling law.

Suggested Citation

  • Jan Rosenzweig, 2019. "Conservation Laws in a Limit Order Book," Papers 1910.09202, arXiv.org, revised Dec 2020.
    • Handle: RePEc:arx:papers:1910.09202
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    References listed on IDEAS

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