5 votes

Limit Order Book modeling

The Queue Reactive (QR) model (by Huang, L and Rosenbaum) is probably the most reliable to simulate order book dynamics. See this answer Order Book Dynamics for specific details. Let just say that the ...
lehalle's user avatar
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4 votes
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Standard ways of simulating order books

Nowadays (4 years after your question...), the best way to simulate orderbook dynamics is probably to implement the Queue Reactive model, from Huang, Weibing, C-A L, and Mathieu Rosenbaum. "...
lehalle's user avatar
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3 votes

Target variables in high frequency trading

What you need depend on what you are trying to do (note that the rest of the explanation is very simplified). If your target is to execute a big order, you can use a short term mid price prediction to ...
Alex D's user avatar
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2 votes

Market Making Formulation

First of all, there is a more general version of Avellaneda-Stoikov here: Guéant, Olivier, C-A L., and Joaquin Fernandez-Tapia. "Dealing with the inventory risk: a solution to the market making ...
lehalle's user avatar
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2 votes
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How are order book and trade data consolidated/distilled into a more(?) tractable form for modeling?

Usually you need orderbook snapshot and update data to take into account latency, slippage, market impact etc. All these things are time sensitive and data intensive. The orderbook data itself is ...
quantinho's user avatar
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2 votes
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How can a top-of-the book market maker protect itself from exploiting?

In general, having an algorithm's logic based on "best bid" and "best ask" is not robust to manipulation. In general it is better to reason in term of "distance to the ...
lehalle's user avatar
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2 votes

Estimate of realized spread

US SEC Rule 605 defines "average realized spread" as the share-weighted average of realized spreads for orders executions calculated, for buy orders, as double the amount of difference ...
krkeane's user avatar
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1 vote

What program should I use to handle large high frequency data?

The right thing is indeed some SQL type language. I strongly recommend SAS since it has good documentation and people have been using it in finance for a long time. With 45 billion data points that's ...
phdstudent's user avatar
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1 vote

One timestamp snapshot of Level 2 LOB NASDAQ 100 companies

First, you'll need the list of index constituents. This is usually very expensive as it's a major source of revenue for indexing companies, but one way to get this free is to go to an ETF issuer's ...
databento's user avatar
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1 vote
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Trade Impulse signal

No, this is the spread in price units. You can checksum that this is what the author intended from the later statement, which shows that book pressure and trade impulse are in price units in order for ...
databento's user avatar
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1 vote
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Multi level micro price

Naive way of doing it: weight each price by the depth of the opposing side. $$\text{p}\left(n\right){\displaystyle =}\dfrac{\sum_{i=0}^{n}\left(s_{b,i}p_{a,i}+s_{a,i}p_{b,i}\right)}{\sum_{i=0}^{n}\...
databento's user avatar
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1 vote

Queue Reactive Model for large spread assets

The paper has been written having "large tick assets" in mind for a direct application, nevertheless it is possible to use it with small tick assets. Come back to the spirit of the Queue ...
lehalle's user avatar
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1 vote

Estimate of realized spread

The realized spread is a measure of market liquidity and is often calculated as the difference between the transaction price and the midpoint of the bid-ask spread some time t after the trade. The ...
Amit Kumar Jha's user avatar
1 vote

How to merge ML-based $\alpha$-signal with stochastic control approach?

A first answer is explained in Market microstructure knowledge needed for controlling an intra-day trading process that is Chapter 21 of Fouque, Jean-Pierre, and Joseph A. Langsam, eds. Handbook on ...
lehalle's user avatar
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1 vote

Modeling orderbook shapes as distribution

They are three levels of sophistication of order book models (there is a book on the topic: Abergel, Frédéric, Marouane Anane, Anirban Chakraborti, Aymen Jedidi, and Ioane Muni Toke. Limit order books ...
lehalle's user avatar
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1 vote

Dealing with the Inventory Risk (Lehalle, Gueant, Tapia): Delta T parameter and actual order duration

you are right, the choice of $\Delta T$ is subtle, and as suggested by Joaquin, it is important to preserve the (relative) independence between the price formation process, that corresponds to the &...
lehalle's user avatar
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1 vote

How to identify buy walls and sell walls from a limit orderbook?

I suggest to get inspiration from Huang, Weibing, C-A L, and Mathieu Rosenbaum. "Simulating and analyzing order book data: The queue-reactive model" Journal of the American Statistical ...
lehalle's user avatar
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1 vote

What is the proportion of aggressive orders vs passive orders executed by different types of traders?

There is a partial answer to this question in Megarbane, Nicolas, Pamela Saliba, C-A L., and Mathieu Rosenbaum. "The behavior of high-frequency traders under different market stress scenarios&...
lehalle's user avatar
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1 vote

Mid-Point calculation with execution probability

Using as weights the probability of execution (or indeed the probability that the price reaches the considered level) makes sense. In essence, you would like to assign weights that reflects how much ...
lehalle's user avatar
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