A reduced-form model for level-1 limit order books
One popular approach to model limit order book dynamics of the best bid and ask at level-1 is to use reduced-form diffusion approximations. It is well known that the biggest contributing factor to the price movement is the imbalance of the best bid and ask. We investigate the data of the level-1 limit order books of a basket of stocks and study the numerical evidence of drift, correlation, volatility and their dependence on the imbalance. Based on the numerical discoveries, we develop a nonparametric discrete model for the dynamics of the best bid and ask. This model can be approximated by a reduced-form model with analytical tractability that can fit the empirical data of correlation, volatilities and probability of price movement simultaneously.
(Joint work with Tzu-Wei Yang)
Lingjiong Zhu grew up in Shanghai and went to study in England, where he got BA from University of Cambridge in 2008. He then moved to the United States and received PhD from New York University in 2013. After a stint at Morgan Stanley, he went to work at the University of Minnesota as the Dunham Jackson Assistant Professor before joining the faculty at Florida State University as an Assistant Professor in 2015. In his spare time, he enjoys reading, traveling, and going to art exhibitions, museums and classical music concerts.
This a joint IAQF/Thalesians seminar, and not an instructional program of New York University.
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