2013/12/02 by Alexander Lipton, Lipton, Alexander, Umberto Pesavento +4 · 4 citations
Decision Sciences · Economics, Econometrics and Finance · #Complex Systems and Time Series Analysis #FOS: Economics and business #Financial Risk and Volatility Modeling #Stock Market Forecasting Methods #Trading and Market Microstructure (q-fin.TR) #q-fin.TR
paper · pdf · doi:10.48550/arxiv.1312.0514
15 pages, 7 figures
arxiv created 2013/12/02 · openalex publication_date 2013/12/02 · arxiv updated 2013/12/03 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We examine the dynamics of the bid and ask queues of a limit order book and their relationship with the intensity of trade arrivals. In particular, we study the probability of price movements and trade arrivals as a function of the quote imbalance at the top of the limit order book. We propose a stochastic model in an attempt to capture the joint dynamics of the top of the book queues and the trading process, and describe a semi-analytic approach to calculate the relative probability of market events. We calibrate the model using historical market data and discuss the quality of fit and practical applications of the results.