B 2g, two each on the ask and bid sides of the market. Market liquidity and convexity of orderbook evidence. Furthermore, limit orders beyond the best quote also provide us a prefect. Stochastic simulation framework for the limit order book. Modeling highfrequency limit order book dynamics with. Conversely, a trader posting on the ask side of a book displaying the same book imbalance will experience a price movement with a downward bias. Liquidity, orderbook, convexity, intraday pattern, dynamic adjustment, price discovery. We study how limit order markets absorb transient liquidity shocks, which occur when a significant fraction of investors lose their willingness and ability to hold assets. We offer several testable implications for various market quality measures such as spread, trading frequency, market resiliency, and time to execution for limit orders. Limit order book dynamics and asset liquidity cuvillier verlag.
December 31, 2003 abstract i propose a continuoustime model of price formation in a market where trading is conducted according to a limitorder book. Information, liquidity, and dynamic limit order markets. The limit order book as a market for liquidity request pdf. Pdf strategic liquidity provision in a limit order book. Liquidity shocks and order book dynamics sticerd lse. In particular, for a given asset the expected average price. A dynamic model of the limit order book ioanid rosu. The limit order book has a price grid with four prices, p i fa 2. Order execution in the limit order book follows time and price priority. Limit orders wait in a queue to be executed against market orders or canceled. Two variables are the key determinants of the limit order book dynamics in equilibrium. Automatic execution increases speed, but increases spreads. Strategic liquidity traders arrive randomly in the market and dynamically choose between limit and market orders, trading o.