Algorithmic trading in a microstructural limit order book model - Archive ouverte HAL Access content directly
Journal Articles Quantitative Finance Year : 2020

Algorithmic trading in a microstructural limit order book model

(1) , (2) , (2)
1
2

Abstract

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.
Fichier principal
Vignette du fichier
algotrading_hal.pdf (727.94 Ko) Télécharger le fichier
Origin : Files produced by the author(s)

Dates and versions

hal-01514987 , version 1 (03-05-2017)
hal-01514987 , version 2 (18-04-2019)
hal-01514987 , version 3 (19-02-2020)

Identifiers

Cite

Frédéric Abergel, Côme Huré, Huyên Pham. Algorithmic trading in a microstructural limit order book model. Quantitative Finance, 2020, 20 (8), pp.1263-1283. ⟨10.1080/14697688.2020.1729396⟩. ⟨hal-01514987v3⟩
1358 View
5283 Download

Altmetric

Share

Gmail Facebook Twitter LinkedIn More