BID-ASK SPREAD DYNAMICS: LARGE UPWARD JUMP WITH GEOMETRIC CATASTROPHES

Cerda-Hernández J.J.; Logachov A.; Yambartsev A. · RAIRO - Operations Research (2024) · DOI: 10.1051/ro/2024039

Resumen

We propose a simple continuous-time stochastic model for capturing the dynamics of a limit order book in the presence of liquidity fluctuations, manifested by gaps in filled price levels within the OB. Inspired by [D. Farmer, L. Gillemot, F. Lillo, S. Mike and A. Sen, Quant. Finance 4 (2004) 383–397.], we define a model for the dynamics of spread that incorporates liquidity fluctuations and undertake a comprehensive theoretical study of the model’s properties, providing rigorous proofs of several key asymptotic theorems. Furthermore, we show how large deviations manifest in the spread under this regime. © The authors. Published by EDP Sciences, ROADEF, SMAI 2024.

Instituciones: Universidad Nacional de Ingeniería