Simulation of a Limit Order Driven Market

Posted: 20 May 2019

See all articles by Julian Lorenz

Julian Lorenz

Independent

Joerg Osterrieder

Zurich University of Applied Sciences

Date Written: June 3, 2008

Abstract

We present an order flow model framework for limit order driven markets. Different from previous models we explicitly model a reference price process that “sweeps” the limit order book as it fluctuates up and down. Our framework allows us to use any stochastic process to model this reference price and very general specifications of the limit order flow. We believe that this framework can fruitfully combine order flow models with well-studied models for stock price processes and provides a step towards developing realistic, yet tractable models for complex limit order driven markets. We use public order data from SWX as an example to estimate the model parameters.

Keywords: Limit Order Book, Order Flow, Algorithmic Trading, Stock Exchange

JEL Classification: C00, C1, E4, E5, G1, G2

Suggested Citation

Lorenz, Julian and Osterrieder, Joerg, Simulation of a Limit Order Driven Market (June 3, 2008). https://doi.org/10.3905/JOT.2009.4.1.023. Available at SSRN: https://ssrn.com/abstract=2984309 or http://dx.doi.org/10.2139/ssrn.2984309

Julian Lorenz

Independent ( email )

No Address Available

Joerg Osterrieder (Contact Author)

Zurich University of Applied Sciences ( email )

Economics and Finance
Technikumstrasse 9
Winterthur, 8401
Switzerland

HOME PAGE: http://www.zhaw.ch

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