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We introduce a Cox-type model for relative intensities of orders flows in a limit order book. The model assumes that all intensities share a common baseline intensity, which may for example represent the global market activity. Parameters can be estimated by quasi likelihood maximization, without any interference from the baseline intensity. Consistency and asymptotic behavior of the estimators are given in several frameworks, and model selection is discussed with information criteria and penalization. The model is well-suited for high-frequency financial data: fitted models using easily interpretable covariates show an excellent agreement with empirical data. Extensive investigation on tick data consequently helps identifying trading signals and important factors determining the limit order book dynamics. We also illustrate the potential use of the framework for out-of-sample predictions.
We propose a parametric model for the simulation of limit order books. We assume that limit orders, market orders and cancellations are submitted according to point processes with state-dependent intensities. We propose new functional forms for these
In financial markets, the order flow, defined as the process assuming value one for buy market orders and minus one for sell market orders, displays a very slowly decaying autocorrelation function. Since orders impact prices, reconciling the persiste
The diagonal effect of orders is well documented in different markets, which states that orders are more likely to be followed by orders of the same aggressiveness and implies the presence of short-term correlations in order flows. Based on the order
Understanding the statistical properties of recurrence intervals of extreme events is crucial to risk assessment and management of complex systems. The probability distributions and correlations of recurrence intervals for many systems have been exte
We consider optimal execution strategies for block market orders placed in a limit order book (LOB). We build on the resilience model proposed by Obizhaeva and Wang (2005) but allow for a general shape of the LOB defined via a given density function.