Demand Storage, Market Liquidity, and Price Volatility
The limit order book is a device for storing demand and effecting trades that is the primary mechanism for price formation in most modern financial markets. We study the limit order book under a random process model of order flow, using simulations and an analytic treatment based on a master equation. We make testable predictions of the price diffusion rate, the depth of stored demand vs. price, the bid-ask spread, and the price impact. Our model provides an explanation for the empirically observed concave form of the price impact function.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||Jan 2002|
|Date of revision:|
|Contact details of provider:|| Postal: 1399 Hyde Park Road, Santa Fe, New Mexico 87501|
Web page: http://www.santafe.edu/sfi/publications/working-papers.html
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- J. Doyne Farmer, 1999.
"Market Force, Ecology, and Evolution,"
Computing in Economics and Finance 1999
651, Society for Computational Economics.
- Challet, Damien & Stinchcombe, Robin, 2001.
"Analyzing and modeling 1+1d markets,"
Physica A: Statistical Mechanics and its Applications,
Elsevier, vol. 300(1), pages 285-299.
- Gode, Dhananjay K & Sunder, Shyam, 1993. "Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 119-37, February.
When requesting a correction, please mention this item's handle: RePEc:wop:safiwp:02-01-001. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)
If references are entirely missing, you can add them using this form.