Simple Model of a Limit Order-Driven Market

7 Pages Posted: 29 Mar 2000

See all articles by Sergei Maslov

Sergei Maslov

Brookhaven National Laboratory - Department of Physics

Multiple version iconThere are 2 versions of this paper

Date Written: October 1999

Abstract

We introduce and study a simple model of a limit order-driven market. Traders in this model can either trade 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 the model has such realistic features as "fat" tails of the price uctuations distribution, 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.

JEL Classification: G12

Suggested Citation

Maslov, Sergei, Simple Model of a Limit Order-Driven Market (October 1999). Available at SSRN: https://ssrn.com/abstract=217288 or http://dx.doi.org/10.2139/ssrn.217288

Sergei Maslov (Contact Author)

Brookhaven National Laboratory - Department of Physics ( email )

Upton, NY 11973-5000
United States
631-344-3742 (Phone)
631-344-2918 (Fax)

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