Questions tagged [market-microstructure]
Market microstructure is generally speaking the way markets are organized at the impact of there structure on the price formation process.
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why quadratic variation is path dependent?
In chapter 2 of The Econometrics of High Frequency Data the quadratic variation relative to a grid $\mathscr{G}$ of any process $X$ is defined as $$[X,X]_t^\mathscr{G} = \sum_{t+1\le t} (X_{t+1}-X_t)^...
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How does one calibrate lambda in a Avellaneda-Stoikov market making problem leading to Gueant-Lehalle-Tapia model?
The title is similar to that of the question I was referred to here which has been answered by Lehalle himself!
I'm trying to implement the Gueant-Lehalle-Tapia model which is how I got to this answer ...
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Latency (market updates) and link to market efficiency
In the book by Lehalle and laruelle - "market microstructure in practice" -
"The trading activity of HFT updates limit orderbooks at a higher rate
than the round trip for any non-...
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Non-zero real-valued function continuous and piecewise $C^1$ that vanishes outside (0,1) with piecewise Lipschitz derivative
In this paper the authors to overcome the presence of microstructure noise which "contaminates" the ito-semimartingale in high-frequency data uses the idea of pre-averaging.
For an ...
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modelling time series using semi-martingale process
During this week lecture my professor said that the semimartingale( brownian motion contamined by noise) is a model in reduced form because we do not specify the dynamic which leads to price ...
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price discreteness in stock market
can you explain what is meant by 'price discreteness' in stock markets? I happened to read this term in some papers but I don't know how to define it
In the paper "Do Price Discreteness and ...
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Trade Impulse signal
https://blog.headlandstech.com/2017/08/03/quantitative-trading-summary/
In reference to the link, under Market Microstructure Signals, the so called "Trade Impulse" signal was mentioned .
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Multi level micro price
Typical micro price formula uses the top of book depth (i.e. level 1 depth):
Microprice = (BidSize x AskPrice + AskSize x BidPrice) / (BidSize + AskSize)
But how does one actually include more depth ...
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Queue Reactive Model for large spread assets
Im working on the implementation of the Queue Reactive Model by Lehalle (https://arxiv.org/pdf/1312.0563.pdf), but I have encountered some implementation problems for my specific assets.
First, the ...
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Lopez de Prado Advances in Financial Machine Learning- entropy for adverse selection
In chapter 18: Entropy Features, Lopez de Prado discusses how entropy can be used to estimate adverse selection. He suggests a method where order imbalance is mapped to quantiles and entropy is ...
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Estimate of realized spread
Given a dataset with second level information about open, high, low, close, volume and vwap of a stock - how can one estimate the realized spread - a simple estimate could be (high - low)- but can one ...
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Is there a common way that level 2 and time & sales data are analyzed together?
Let's say that for a single asset, we have a data stream from which we receive both level 2 order book updates (price level/quantity updates) as well as time & sales updates (grouped recent trades)...
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What happened when market status change from pre-market trading hours to standard trading hours?
Now we can place orders in pre-market trading hours, from 4 am to 9:30 am. And then we go into standard trading hours, 9:30 am to 4:30 pm. But I wonder then when will the Market Order Auction happen?
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Is there a commonly accepted way to leverage the granularity of high frequency data while working within the constraints of lower frequencies?
Apologies if this is not the correct forum for this question.
Access to high frequency data (trade data, quote data, limit order book updates, etc.) is currently relatively easy through various public ...
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Order Flow Imbalance calculation
I was wondering if anyone could help me understand Figure 2 Rama Cont's Price Impact paper? It is on arxiv as well.
In Figure 2 (screen from arxiv version), they demonstrate how to derive change in ...
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Market impact power law fitting confusion
In many market impact papers such as "Anomalous price impact and the critical nature of liquidity in financial markets" by Tóth et al (2018), there is a standard power-law relation in the ...
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Simulation of SFGK Model for limit order books [closed]
am trying to simulate the SFGK model from the paper "Statistical theory of the Continuous Double Auction", Eric Smith, J. Doyne Farmer, Laszlo Gillemot and Supriya Krishnamurthy [1].
The ...
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Dealing with the inventory risk: solution with drift
I'm implementing the solution with drift from "Dealing with the inventory risk" from Gueant, Lehalle and Tapia. I'm using the link https://arxiv.org/pdf/1105.3115.pdf as reference.
I can ...
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Screening Market Order - Limit Order Books and Modeling
I am reading the paper "A statistical theory of continuous double auction". The paper can be found at,
https://www.santafe.edu/research/results/working-papers/statistical-theory-of-the-...
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Transform non-linear HJB PDE into system of linear ODEs [closed]
I am reading this market making paper, and am trying to understand the transformation presented on page 6. A good resource for background relevant to the transformation is this other market-making ...
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Relationship between order size and spread for direct market order
Suppose that I am placing a market order directly in the order book of an exchange. For market orders, it seems quite clear that larger orders obtain larger spreads due to the fact that - without loss ...
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Dealing with the Inventory Risk (Lehalle, Gueant, Tapia): Delta T parameter and actual order duration
Reference paper: Dealing with the Inventory Risk (Lehalle, Gueant, Tapia)
∆T is the time horizon over which you compute the intensities of aggressive orders (you get the k and A parameters)
I have two ...
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Can I extend the private information model of Kyle in in a continuous analogue, e.g. the Ornstein–Uhlenbeck process?
Taking into account an old post of maths.stackexchange, I recall the following:
On the one hand, we know that the Ornstein–Uhlenbeck process can also be considered as the continuous-time analogue of ...
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Clarification on the Quote Rule and the Limit Order Display Rule
I am currently reading Market Liquidity by Foucault, Pagano and Röell. In chapter one they describe the limit order book markets and dealer markets.
I am confused about two rules that so called "...
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What are the parameters’ units in the Avellaneda and Stoikov model?
I'm studying a draft of the paper “Dealing with the Inventory Risk:
A solution to the market making problem” by Guéant et al from July 2012.
According to the paper, the closed form solution to the ...
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Do MarketOnClose orders cross a bid-ask spread?
If I'm entering into a Market order to buy (e.g., for a share of SPY), it's easy to see the spread that I am crossing: I can compare the "mid" average of the NBBO to the ask, and that's the ...
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What is milliprice (it seems to be an extension of microprice) [closed]
For computing the expected future price (on a small time scale) one can use micro price which is defined here.
The definition of micro-price is
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Understanding and calculating all the trading fees
I'm trying to make a simple script that calculates fees (commission, regulatory, exchange and others). Taking Fee Table from IBKR as an example I have a few questions:
Is "Value of Aggregate ...
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Order Book during trade halts
I noticed this weird structure of the order book during trade halt of $GCT, August 19th 2022. Stock was halted at the time.
Could someone explain why bid is higher than ask?
Is this just a bug in the ...
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How to solve numerically the IDE of GUILBAUD & PHAM model?
By the Guilbaud & Pham model (Optimal high frequency trading with limit and market orders, 2011), the authors said that integro-differential-equation (IDE)
can be easily solved by numerical method....
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Can we spot informed trading from market prices?
Is there any consensus on what is the price behavior in presence of informed trading? Can we observe in retrospect any anomaly in the time series of prices of realized transactions, or transformations ...
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How can a top-of-the book market maker protect itself from exploiting?
Let's consider there is an instrument N traded on a single venue (centralized anonymous limit orderbook). Let's say that most taker orders are tiny, therefore the one who stays at the best bid/offer ...
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Computing market impact from the order book?
Market impact as I understand it measure the difference in price between the first share that is bought and the last share that is bought when an buy order of N shares is submitted to the exchange. (...
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Level 1 NBBO - what is going on?
Looking at some level 1 quotes data (QRM) on the bloomberg terminal for a DAX index option. Why is there always a 1 lot quote for 450 just popping in every other tick? Seems like there is a single MM ...
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Market impact estimation [duplicate]
Can anyone provide us with an empirical example (in Python) of market impact visualization, methods of its estimation (in the framework of a parametric model for impact functions) ?
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A question about the Grossman-Miller Market Making Model
I don't have any solid background in finance, but I have a strong mathematics and physics background.
I am reading Algorithmic and high-frequency trading from A.Cartea, S.Jaimungal and J.Penalva, CUP (...
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Comparison between Effective Bid-Ask spreads
I understood that given two listed assets, the one with the lower effective spread is more liquid, and if one has effective spread lower than the quoted one, it means there has been a price ...
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Exchange vs Order-Driven vs Quote -Driven
I have never understood the implications of a quote or order-driven market.
When I look up securities on google in a way to see their prices, is that price the price of the exchange? the price of a ...
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Downloaded data is quote-driven or order-driven?
I downloaded data from Refinitiv Datastream (But I think that you get the same data from Bloomberg) to write my thesis. I downloaded prices and volumes.
I have a crucial question now: Are the prices ...
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Backtesting using microstructure (orderbook) data
I would like to use tick data (especially order book data; but also trade) to backtest my strategies, can anyone offer a recommendation? Personally, I've written my own backtesting scripts couple of ...
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Adapted Roll measure implementation
I'm currently trying to implement the roll measure adapted by Easley et al. (2020, p. 22).
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3345183
The adapted roll measure is given by the eq below....
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Adverse selection and market makers
What are practical examples of adverse selection market makers have to deal with??
I’ve read books but couldn’t really understand the concepts…
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Game theoretic description of stock market
I read the book "Theory of Games and Economic Behavior" by John von Neumann and Oskar Morgenstern. I think that stock market may be described by game theory. But here are the problems:
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Do IOC Orders Stay on the Order Book for Any Period of Time
I'm confused on whether or not an IOC (Immediate Or Cancel) order will stay on the order book for any period of time.
For example, if I place an IOC buy limit order at \$1.00 and the ask price is $1....
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How often do maker orders arrive together with matching taker orders on modern exchanges?
Table below shows messages that were recently collected from the Full channel of the websocket feed of the well-known cryptocurrency exchange:
The full channel provides real-time updates on orders ...
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Mechanism design in continuous time models
I am interested in mechanism design and information design. Is there any part of the literature in financial mathematics that is associated with them. I mean could we bring somehow these topics under ...
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Methods of predicting liquidity consumption
Let's consider limit order book for a certain stock. By liquidity consumers i mean traders that buy/sell shares using market orders.
What are the known methods/models for predicting total amount of ...
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How to merge ML-based $\alpha$-signal with stochastic control approach?
I'm having a hypothetical situation where I have a set of ML-based alpha signals $\{\alpha_i\}_{i=1}^{N}$ that describe a different states of order book - imbalances, order flow, spread properties etc....
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How do better informed traders apply their advantage over the others?
Let's suppose that some trader knows something, that most of other market participants don't know.
That knowledge may be directly related to the stock market e.g. number of open long positions below/...
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At what time step the microstructure noise start to kick in?
When looking for papers on-line I often find things designed specifically to deal with micro-structure noise. I spent some time trying to understand / implement / test them for results that vary ...
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