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Stochastic simulation framework for the Limit Order Book using liquidity motivated agents

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  • Efstathios Panayi
  • Gareth Peters

Abstract

In this paper we develop a new form of agent-based model for limit order books based on heterogeneous trading agents, whose motivations are liquidity driven. These agents are abstractions of real market participants, expressed in a stochastic model framework. We develop an efficient way to perform statistical calibration of the model parameters on Level 2 limit order book data from Chi-X, based on a combination of indirect inference and multi-objective optimisation. We then demonstrate how such an agent-based modelling framework can be of use in testing exchange regulations, as well as informing brokerage decisions and other trading based scenarios.

Suggested Citation

  • Efstathios Panayi & Gareth Peters, 2015. "Stochastic simulation framework for the Limit Order Book using liquidity motivated agents," Papers 1501.02447, arXiv.org, revised Jan 2015.
    • Handle: RePEc:arx:papers:1501.02447
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    Cited by:

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    3. Zijian Shi & John Cartlidge, 2024. "Neural stochastic agent‐based limit order book simulation with neural point process and diffusion probabilistic model," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 31(2), June.
    4. Jorge Faleiro, 2018. "A Language for Large-Scale Collaboration in Economics: A Streamlined Computational Representation of Financial Models," Papers 1809.06471, arXiv.org.

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