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Towards Robust Representation of Limit Orders Books for Deep Learning Models

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  • Yufei Wu
  • Mahmoud Mahfouz
  • Daniele Magazzeni
  • Manuela Veloso

Abstract

The success of deep learning-based limit order book forecasting models is highly dependent on the quality and the robustness of the input data representation. A significant body of the quantitative finance literature focuses on utilising different deep learning architectures without taking into consideration the key assumptions these models make with respect to the input data representation. In this paper, we highlight the issues associated with the commonly-used representations of limit order book data from both a theoretical and practical perspectives. We also show the fragility of the representations under adversarial perturbations and propose two simple modifications to the existing representations that match the theoretical assumptions of deep learning models. Finally, we show experimentally how our proposed representations lead to state-of-the-art performance in both accuracy and robustness utilising very simple neural network architectures.

Suggested Citation

  • Yufei Wu & Mahmoud Mahfouz & Daniele Magazzeni & Manuela Veloso, 2021. "Towards Robust Representation of Limit Orders Books for Deep Learning Models," Papers 2110.05479, arXiv.org, revised Dec 2022.
    • Handle: RePEc:arx:papers:2110.05479
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    References listed on IDEAS

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    1. Zihao Zhang & Stefan Zohren & Stephen Roberts, 2018. "BDLOB: Bayesian Deep Convolutional Neural Networks for Limit Order Books," Papers 1811.10041, arXiv.org.
    2. Magnus Wiese & Robert Knobloch & Ralf Korn & Peter Kretschmer, 2020. "Quant GANs: deep generation of financial time series," Quantitative Finance, Taylor & Francis Journals, vol. 20(9), pages 1419-1440, September.
    3. Mahmoud Mahfouz & Angelos Filos & Cyrine Chtourou & Joshua Lockhart & Samuel Assefa & Manuela Veloso & Danilo Mandic & Tucker Balch, 2019. "On the Importance of Opponent Modeling in Auction Markets," Papers 1911.12816, arXiv.org.
    4. Alec N. Kercheval & Yuan Zhang, 2015. "Modelling high-frequency limit order book dynamics with support vector machines," Quantitative Finance, Taylor & Francis Journals, vol. 15(8), pages 1315-1329, August.
    5. Justin A. Sirignano, 2019. "Deep learning for limit order books," Quantitative Finance, Taylor & Francis Journals, vol. 19(4), pages 549-570, April.
    6. James Wallbridge, 2020. "Transformers for Limit Order Books," Papers 2003.00130, arXiv.org.
    7. Justin Sirignano & Rama Cont, 2019. "Universal features of price formation in financial markets: perspectives from deep learning," Quantitative Finance, Taylor & Francis Journals, vol. 19(9), pages 1449-1459, September.
    8. Zihao Zhang & Stefan Zohren, 2021. "Multi-Horizon Forecasting for Limit Order Books: Novel Deep Learning Approaches and Hardware Acceleration using Intelligent Processing Units," Papers 2105.10430, arXiv.org, revised Aug 2021.
    9. Abergel,Frédéric & Anane,Marouane & Chakraborti,Anirban & Jedidi,Aymen & Muni Toke,Ioane, 2016. "Limit Order Books," Cambridge Books, Cambridge University Press, number 9781107163980.
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    11. Adamantios Ntakaris & Martin Magris & Juho Kanniainen & Moncef Gabbouj & Alexandros Iosifidis, 2018. "Benchmark dataset for mid‐price forecasting of limit order book data with machine learning methods," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 37(8), pages 852-866, December.
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    Cited by:

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