Algorithmic trading in a microstructural limit order book model
| Autor: | Huyên Pham, Frédéric Abergel, Côme Huré |
|---|---|
| Přispěvatelé: | Mathématiques et Informatique pour la Complexité et les Systèmes (MICS), CentraleSupélec-Université Paris-Saclay, Laboratoire de Probabilités, Statistiques et Modélisations (LPSM (UMR_8001)), Université Paris Diderot - Paris 7 (UPD7)-Sorbonne Université (SU)-Centre National de la Recherche Scientifique (CNRS), CentraleSupélec, Laboratoire de Probabilités, Statistique et Modélisation (LPSM (UMR_8001)) |
| Jazyk: | angličtina |
| Rok vydání: | 2020 |
| Předmět: |
Mathematical optimization
Computer science high-frequency trading computer.software_genre Market maker Point process FIFO and LIFO accounting Limit order book 0502 economics and business Order book 050207 economics High-frequency trading Algorithmic trading [QFIN.TR]Quantitative Finance [q-fin]/Trading and Market Microstructure [q-fin.TR] Quantitative Finance - Trading and Market Microstructure 050208 finance 05 social sciences Dynamic programming [MATH.MATH-PR]Mathematics [math]/Probability [math.PR] high-dimensional stochastic control local regression Hawkes Process Markov decision process quantization pure-jump controlled process General Economics Econometrics and Finance computer Mathematics - Probability Finance Markov Decision Process |
| Zdroj: | Quantitative Finance Quantitative Finance, Taylor & Francis (Routledge), 2020, 20 (8), pp.1263-1283. ⟨10.1080/14697688.2020.1729396⟩ Quantitative Finance, Taylor & Francis (Routledge), In press |
| ISSN: | 1469-7688 1469-7696 |
| DOI: | 10.1080/14697688.2020.1729396⟩ |
| Popis: | International audience; We propose a microstructural modeling framework for studying optimal market making policies in a FIFO (first in first out) limit order book (LOB). In this context, the limit orders, market orders, and cancel orders arrivals in the LOB are modeled as Cox point processes with intensities that only depend on the state of the LOB. These are high-dimensional models which are realistic from a micro-structure point of view and have been recently developed in the literature. In this context, we consider a market maker who stands ready to buy and sell stock on a regular and continuous basis at a publicly quoted price, and identifies the strategies that maximize her P&L penalized by her inventory. We apply the theory of Markov Decision Processes and dynamic programming method to characterize analytically the solutions to our optimal market making problem. The second part of the paper deals with the numerical aspect of the high-dimensional trading problem. We use a control randomization method combined with quantization method to compute the optimal strategies. Several computational tests are performed on simulated data to illustrate the efficiency of the computed optimal strategy. In particular, we simulated an order book with constant/ symmet-ric/ asymmetrical/ state dependent intensities, and compared the computed optimal strategy with naive strategies. Some codes are available on https://github.com/comeh. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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