TY - JOUR
T1 - Simple model of a limit order-driven market
AU - Maslov, Sergei
N1 - Funding Information:
The work at Brookhaven National Laboratory was supported by the US Department of Energy Division of Material Science, under contract DE-AC02-98CH10886. The author thanks Y.-C. Zhang for useful discussions, and the Institut de Physique Théorique, Université de Fribourg for the hospitality and financial support during the visit, when this work was started.
PY - 2000/4/15
Y1 - 2000/4/15
N2 - We introduce and study a simple model of a limit order-driven market. Traders in this model can either trade stock (or any other risky asset for that matter) at the market price or place a limit order, i.e., an instruction to buy (sell) a certain amount of the stock if its price falls below (raises above) a predefined level. The choice between these two options is purely random (there are no strategies involved), and the execution price of a limit order is determined simply by offsetting the most recent market price by a random amount. Numerical simulations of this model revealed that despite such minimalistic rules the price pattern generated by this model has such realistic features as `fat' tails of the probability distribution of price fluctuations, characterized by a crossover between two power law exponents, long range correlations of the volatility, and a non-trivial Hurst exponent of the price signal.
AB - We introduce and study a simple model of a limit order-driven market. Traders in this model can either trade stock (or any other risky asset for that matter) at the market price or place a limit order, i.e., an instruction to buy (sell) a certain amount of the stock if its price falls below (raises above) a predefined level. The choice between these two options is purely random (there are no strategies involved), and the execution price of a limit order is determined simply by offsetting the most recent market price by a random amount. Numerical simulations of this model revealed that despite such minimalistic rules the price pattern generated by this model has such realistic features as `fat' tails of the probability distribution of price fluctuations, characterized by a crossover between two power law exponents, long range correlations of the volatility, and a non-trivial Hurst exponent of the price signal.
UR - http://www.scopus.com/inward/record.url?scp=0033880410&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=0033880410&partnerID=8YFLogxK
U2 - 10.1016/S0378-4371(00)00067-4
DO - 10.1016/S0378-4371(00)00067-4
M3 - Article
AN - SCOPUS:0033880410
SN - 0378-4371
VL - 278
SP - 571
EP - 578
JO - Physica A: Statistical Mechanics and its Applications
JF - Physica A: Statistical Mechanics and its Applications
IS - 3
ER -