Simulation of a Limit Order Driven Market

Posted: 20 May 2019 Last revised: 23 Jan 2023

See all articles by Julian Lorenz

Julian Lorenz

Independent

Joerg Osterrieder

University of Twente; Bern Business School

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 )

Joerg Osterrieder (Contact Author)

University of Twente ( email )

Drienerlolaan 5
Departement of High-Tech Business and Entrepreneur
Enschede, 7522 NB
Netherlands

Bern Business School ( email )

Brückengasse
Institute of Applied Data Sciences and Finance
Bern, BE 3005
Switzerland

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