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HYDRODYNAMIC LIMIT OF ORDER-BOOK DYNAMICS
Published online by Cambridge University Press: 28 November 2016
Abstract
In this paper, we establish a fluid limit for a two-sided Markov order book model. The main result states that in a certain asymptotic regime, a pair of measure-valued processes representing the “sell-side shape” and “buy-side shape” of an order book converges to a pair of deterministic measure-valued processes in a certain sense. We also test the fluid approximation on data. The empirical results suggest that the approximation is reasonably good for liquidly traded stocks in certain time periods.
- Type
- Research Article
- Information
- Probability in the Engineering and Informational Sciences , Volume 32 , Issue 1 , January 2018 , pp. 96 - 125
- Copyright
- Copyright © Cambridge University Press 2016
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