High-Resilience Limits of Block-Shaped Order Books

Self-exciting price impact via negative resilience in stochastic order books

Most of the existing literature on optimal trade execution in limit order book models assumes that resilience is positive. But negative resilience also has a natural interpretation, as it models self-exciting behaviour of the price impact, where trading activities of the large investor stimulate other market participants to trade in the same direction. In the paper we discuss several new qualitative effects on optimal trade execution that arise when we allow resilience to take negative values. We do this in a framework where both market depth and resilience are stochastic processes.

Optimal execution strategies in limit order books with general shape functions

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. Thus, we can allow for empirically observed LOB shapes and obtain a nonlinear price impact of market orders. We distinguish two possibilities for modeling the resilience of the LOB after a large market order: the exponential recovery of the number of limit orders, i.e., of the volume of the LOB, or the exponential recovery of the bid-ask spread. W…

订单簿市场中的羊群效应与流动性。II. 基本面锚定与流动性弹性

Herding and Liquidity in Order-Book Markets. II. Fundamental Anchoring and the Resilience of Liquidity

研究订单簿市场中流动性供应锚定基本面价值时的恢复力及稳定性，通过因果关系识别恢复力，还探讨压力市场流动性压力的传递，发现其不会传递，指出流动性危机是基本面锚定失败而非做市失败。

Optimal trade execution in an order book model with stochastic liquidity parameters

We analyze an optimal trade execution problem in a financial market with stochastic liquidity. To this end we set up a limit order book model in which both order book depth and resilience evolve randomly in time. Trading is allowed in both directions and at discrete points in time. We derive an explicit recursion that, under certain structural assumptions, characterizes minimal execution costs. We also discuss several qualitative aspects of optimal strategies, such as existence of profitable round trips or closing the position in one go, and compare our findings with the literature.

Càdlàg semimartingale strategies for optimal trade execution in stochastic order book models

We analyze an optimal trade execution problem in a financial market with stochastic liquidity. To this end we set up a limit order book model in continuous time. Both order book depth and resilience are allowed to evolve randomly in time. We allow for trading in both directions and for càdlàg semimartingales as execution strategies. We derive a quadratic BSDE that under appropriate assumptions characterizes minimal execution costs and identify conditions under which an optimal execution strategy exists. We also investigate qualitative aspects of optimal strategies such as, e.g., appearance of …

Optimal trade execution and price manipulation in order books with time-varying liquidity

In financial markets, liquidity is not constant over time but exhibits strong seasonal patterns. In this article we consider a limit order book model that allows for time-dependent, deterministic depth and resilience of the book and determine optimal portfolio liquidation strategies. In a first model variant, we propose a trading dependent spread that increases when market orders are matched against the order book. In this model no price manipulation occurs and the optimal strategy is of the wait region - buy region type often encountered in singular control problems. In a second model, we ass…