TY - JOUR
T1 - Stochastic simulation framework for the limit order book using liquidity-motivated agents
AU - Panayi, Efstathios
AU - Peters, Gareth W.
PY - 2015/7/1
Y1 - 2015/7/1
N2 - In this paper, we develop a new form of simulation 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 optimization. We then demonstrate how such a modeling framework can be of use in testing exchange regulations, as well as informing brokerage decisions and other trading based scenarios.
AB - In this paper, we develop a new form of simulation 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 optimization. We then demonstrate how such a modeling framework can be of use in testing exchange regulations, as well as informing brokerage decisions and other trading based scenarios.
U2 - 10.1142/S2424786315500139
DO - 10.1142/S2424786315500139
M3 - Article
SN - 2424-7863
VL - 2
JO - International Journal of Financial Engineering
JF - International Journal of Financial Engineering
IS - 2
M1 - 1550013
ER -