Optimal Execution in a Limit Order Book and an Associated Microstructure Market Impact Model

2015 ◽  
Author(s):  
Costis Maglaras ◽  
Ciamac C. Moallemi ◽  
Hua Zheng
Keyword(s):  
Limit Order Book ◽  
Order Book ◽  
Impact Model ◽  
Market Impact ◽  
Limit Order ◽  
Optimal Execution

scholarly journals Optimal Execution in a General One-Sided Limit-Order Book

2011 ◽  
Vol 2 (1) ◽  
pp. 183-212 ◽  
Author(s):  
Silviu Predoiu ◽  
Gennady Shaikhet ◽  
Steven Shreve
Keyword(s):  
Limit Order Book ◽  
Order Book ◽  
Limit Order ◽  
Optimal Execution

Intraday liquidity patterns in limit order books

2014 ◽  
Vol 31 (1) ◽  
pp. 46-71 ◽  
Author(s):  
Azeem Malik ◽  
Wing Lon Ng
Keyword(s):  
Weighted Average ◽  
Scheduling Algorithms ◽  
Limit Order Book ◽  
Order Book ◽  
Trading Costs ◽  
Market Impact ◽  
Limit Order ◽  
Content Type ◽  
Intraday Liquidity ◽  
Intraday Patterns

Purpose – Algorithmic trading attempts to reduce trading costs by selecting optimal trade execution and scheduling algorithms. Whilst many common approaches only consider the bid-ask spread when measuring market impact, the authors aim to analyse the detailed limit order book data, which has more informational content. Design/methodology/approach – Using data from the London Stock Exchange's electronic SETS platform, the authors transform limit order book compositions into volume-weighted average price curves and accordingly estimate market impact. The regression coefficients of these curves are estimated, and their intraday patterns are revealed using a nonparametric kernel regression model. Findings – The authors find that market impact is nonlinear, time-varying, and asymmetric. Inferences drawn from marginal probabilities regarding Granger-causality do not show a significant impact of slope coefficients on the opposite side of the limit order book, thus implying that each side of the market is simultaneously rather than sequentially influenced by prevailing market conditions. Research limitations/implications – Results show that intraday seasonality patterns of liquidity may be exploited through trade scheduling algorithms in an attempt to minimise the trading costs associated with large institutional trades. Originality/value – The use of the detailed limit order book to reveal intraday patterns in liquidity provision offers better insight into the interactions of market participants. Such valuable information cannot be fully recovered from the traditional transaction data-based approaches.

scholarly journals A dynamic optimal execution strategy under stochastic price recovery

2015 ◽  
Vol 02 (04) ◽  
pp. 1550025 ◽  
Author(s):  
Masashi Ieda
Keyword(s):  
Order Book ◽  
Market Impact ◽  
Time Step ◽  
Limit Order ◽  
Optimal Execution ◽  
Execution Strategy ◽  
Quasi Variational Inequality ◽  
Finite Time Horizon ◽  
Hamilton Jacobi Bellman ◽  
Optimal Execution Problem

In the present paper, we study the optimal execution problem under stochastic price recovery based on limit order book dynamics. We model price recovery after execution of a large order by accelerating the arrival of the refilling order, which is defined as a Cox process whose intensity increases by the degree of the market impact. We include not only the market order, but also the limit order in our strategy in a restricted fashion. We formulate the problem as a combined stochastic control problem over a finite time horizon. The corresponding Hamilton–Jacobi–Bellman quasi-variational inequality is solved numerically. The optimal strategy obtained consists of three components: (i) the initial large trade; (ii) the unscheduled small trades during the period; (iii) the terminal large trade. The size and timing of the trade is governed by the tolerance for market impact depending on the state at each time step, and hence the strategy behaves dynamically. We also provide competitive results due to inclusion of the limit order, even though a limit order is allowed under conservative evaluation of the execution price.

scholarly journals Derivatives pricing with market impact and limit order book

Automatica ◽  
2017 ◽  
Vol 86 ◽  
pp. 154-165 ◽  
Author(s):  
Taiga Saito ◽  
Akihiko Takahashi
Keyword(s):  
Limit Order Book ◽  
Order Book ◽  
Market Impact ◽  
Limit Order ◽  
Derivatives Pricing
Sign in / Sign up

Export Citation Format

Share Document