Cao, Hansch, and Wang (2004) "The Informational Content of an Open Limit Order Book"

$$ \mbox{WP}^{n_1 - n_2} = \frac{\sum_{j=n_1}^{n_2} (Q_j^d P_j^d + Q_j^s P_j^s)}{(Q_j^d + Q_j^s)} $$

Did someone know maybe some variation of that equation that penalizing quotes that are more away from best quotes? I think result of that formula is easy to manipulate by placing limit orders in large amount at prices that have very low execution probability in some time.

I'm trying to modify that formula, with inputing additional touching probability for each ask and bid level calculated from book market orders inflow in some sampled time T to ability for penalize levels on what orders can be easy cancelled before execution.

  • $\begingroup$ Cross-posted on NP $\endgroup$ Aug 17, 2014 at 20:24
  • $\begingroup$ Hi Svisstack, could you please disclose the fact that the post is cross-posted here and on NP and make sure that good answers are visible here and there. You can read more on preferred practice on meta. $\endgroup$
    – Bob Jansen
    Aug 18, 2014 at 7:22
  • $\begingroup$ @BobJansen: Of course. $\endgroup$
    – Svisstack
    Aug 18, 2014 at 9:08
  • $\begingroup$ What is your objective? $\endgroup$ Aug 18, 2014 at 11:33
  • $\begingroup$ determinate better value of asset, including probability of filling for each order in some amount of time T, soo midpoint calculation should be parametrized with that calculated probabilities, will also depends on calculation of that probabilities, but I'm open to other suggestions $\endgroup$
    – Svisstack
    Aug 18, 2014 at 11:43


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