BID-ASK SPREAD DYNAMICS: LARGE UPWARD JUMP WITH GEOMETRIC CATASTROPHES

Jose Javier Cerda-Hernández; Artem Logachov; Anatoly Yambartsev

doi:10.1051/ro/2024039

BID-ASK SPREAD DYNAMICS: LARGE UPWARD JUMP WITH GEOMETRIC CATASTROPHES

Jose Javier Cerda-Hernández
, Artem Logachov
, Anatoly Yambartsev

Research output: Contribution to journal › Article › peer-review

Abstract

We propose a simple continuous-time stochastic model for capturing the dynamics of a limit order book in the presence of liquidity fluctuations, manifested by gaps in filled price levels within the OB. Inspired by [D. Farmer, L. Gillemot, F. Lillo, S. Mike and A. Sen, Quant. Finance 4 (2004) 383–397.], we define a model for the dynamics of spread that incorporates liquidity fluctuations and undertake a comprehensive theoretical study of the model’s properties, providing rigorous proofs of several key asymptotic theorems. Furthermore, we show how large deviations manifest in the spread under this regime.

Original language	English
Pages (from-to)	1375-1399
Number of pages	25
Journal	RAIRO - Operations Research
Volume	58
Issue number	2
DOIs	https://doi.org/10.1051/ro/2024039
State	Published - Mar 2024
Externally published	Yes

Keywords

Markov models
geometric catastrophes
limit order book
liquidity fluctuations

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10.1051/ro/2024039

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title = "BID-ASK SPREAD DYNAMICS: LARGE UPWARD JUMP WITH GEOMETRIC CATASTROPHES",

abstract = "We propose a simple continuous-time stochastic model for capturing the dynamics of a limit order book in the presence of liquidity fluctuations, manifested by gaps in filled price levels within the OB. Inspired by [D. Farmer, L. Gillemot, F. Lillo, S. Mike and A. Sen, Quant. Finance 4 (2004) 383–397.], we define a model for the dynamics of spread that incorporates liquidity fluctuations and undertake a comprehensive theoretical study of the model{\textquoteright}s properties, providing rigorous proofs of several key asymptotic theorems. Furthermore, we show how large deviations manifest in the spread under this regime.",

keywords = "Markov models, geometric catastrophes, limit order book, liquidity fluctuations",

author = "Cerda-Hern{\'a}ndez, \{Jose Javier\} and Artem Logachov and Anatoly Yambartsev",

note = "Publisher Copyright: {\textcopyright} The authors. Published by EDP Sciences, ROADEF, SMAI 2024.",

year = "2024",

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language = "English",

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AU - Cerda-Hernández, Jose Javier

AU - Logachov, Artem

AU - Yambartsev, Anatoly

N1 - Publisher Copyright: © The authors. Published by EDP Sciences, ROADEF, SMAI 2024.

PY - 2024/3

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N2 - We propose a simple continuous-time stochastic model for capturing the dynamics of a limit order book in the presence of liquidity fluctuations, manifested by gaps in filled price levels within the OB. Inspired by [D. Farmer, L. Gillemot, F. Lillo, S. Mike and A. Sen, Quant. Finance 4 (2004) 383–397.], we define a model for the dynamics of spread that incorporates liquidity fluctuations and undertake a comprehensive theoretical study of the model’s properties, providing rigorous proofs of several key asymptotic theorems. Furthermore, we show how large deviations manifest in the spread under this regime.

AB - We propose a simple continuous-time stochastic model for capturing the dynamics of a limit order book in the presence of liquidity fluctuations, manifested by gaps in filled price levels within the OB. Inspired by [D. Farmer, L. Gillemot, F. Lillo, S. Mike and A. Sen, Quant. Finance 4 (2004) 383–397.], we define a model for the dynamics of spread that incorporates liquidity fluctuations and undertake a comprehensive theoretical study of the model’s properties, providing rigorous proofs of several key asymptotic theorems. Furthermore, we show how large deviations manifest in the spread under this regime.

KW - Markov models

KW - geometric catastrophes

KW - limit order book

KW - liquidity fluctuations

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DO - 10.1051/ro/2024039

M3 - Article

AN - SCOPUS:85190296408

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SP - 1375

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JO - RAIRO - Operations Research

JF - RAIRO - Operations Research

IS - 2

ER -

BID-ASK SPREAD DYNAMICS: LARGE UPWARD JUMP WITH GEOMETRIC CATASTROPHES

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Keywords

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