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A mathematical formulation of order cancellation for the agent-based modelling of financial markets

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  • Yoshimura, Yushi
  • Okuda, Hiroshi
  • Chen, Yu

Abstract

It is well known that the distribution of lifetimes of orders obeys the power-law in the stock markets. However, to the authors’ knowledge, few agent-based models (ABM) could reproduce this phenomenon yet. In this study, we propose a model aiming at the recovery of this power-law scaling. Under the assumption that traders decide to submit cancellation orders relying on their waiting time, a mathematical formulation of order cancellation is obtained in the balance state. With this formulation, simulation results agree well with the theoretical derivation.

Suggested Citation

  • Yoshimura, Yushi & Okuda, Hiroshi & Chen, Yu, 2020. "A mathematical formulation of order cancellation for the agent-based modelling of financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 538(C).
    • Handle: RePEc:eee:phsmap:v:538:y:2020:i:c:s0378437119314372
    DOI: 10.1016/j.physa.2019.122507
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    References listed on IDEAS

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    Cited by:

    1. Li, Manzi & Jiang, Gege & Lo, Hong K., 2023. "Optimal cancellation penalty for competing ride-sourcing platforms under waiting time uncertainty," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 174(C).

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