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2013

Trade arrival dynamics and quote imbalance in a limit order book

Lipton, Alexander, Pesavento, Umberto, Sotiropoulos, Michael G

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We examine the dynamics of the bid and ask queues of a limit order book and their relationship with the intensity of trade arrivals.

In particular, we study the probability of price movements and trade arrivals as a function of the quote imbalance at the top of the limit order book.
We propose a stochastic model in an attempt to capture the joint dynamics of the top of the book queues and the trading process, and describe a semi-analytic approach to calculate the relative probability of market events.
We calibrate the model using historical market data and discuss the quality of fit and practical applications of the results.

Trade arrival dynamics and quote imbalance in a limit order book · Around

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Measuring the information content of stock trades
J. Hasbrouck · 1991
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The econometrics of ultra-high frequency data
R. F. Engle · 2000
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Mathematical Methods For Foreign Exchange: A Financial Engineer’s Approach
A. Lipton · 2001
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Statistical properties of stock order books: empirical results and models
J.-P. Bouchaud, D. Mezard, and M. Potters · 2002
Earlier work this paper cites.
Statistical theory of the continuous double auction
E. Smith, J.D. Farmer, L. Gillemot, and S. Krishnamurthy · 2003
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