1999/10/30 by Sergei Maslov · 3 citations
Computer Science · Economics, Econometrics and Finance · Physics and Astronomy · #Complex Systems and Time Series Analysis #Nonlinear Dynamics and Pattern Formation #cond-mat.stat-mech #q-fin.TR #stochastic dynamics and bifurcation
paper · pdf · doi:10.1016/s0378-4371(00)00067-4
published as Physica A 278, 571(2000) · 4 pages, 3 fugures
arxiv created 1999/10/30 · openalex publication_date 2000/04/01 · arxiv updated 2009/11/30 · openalex created_date 2020/11/23 · openalex updated_date 2026/07/28
We introduce and study a simple model of a limit order-driven market. Traders in this model can either trade at the market price or place a limit order, i.e. an instruction to buy (sell) a certain amount of the stock if its price falls below (raises above) a predefined level. The choice between these two options is purely random (there are no strategies involved), and the execution price of a limit order is determined simply by offsetting the most recent market price by a random amount. Numerical simulations of this model revealed that despite such minimalistic rules the price pattern generated by the model has such realistic features as ``fat'' tails of the price fluctuations distribution, characterized by a crossover between two power law exponents, long range correlations of the volatility, and a non-trivial Hurst exponent of the price signal.