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Classical Statistical Models for Limit Order Book Dynamics

Article Quant Q&A · Author: Piyush Divyanakar
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Summary

The document points to foundational literature for building statistical models of order arrivals and limit order book evolution. It identifies a stochastic order book model, a Markovian model for price dynamics, and a broader survey of high-frequency financial data that discusses empirical facts, modeling approaches, and open challenges.

These references offer starting points for researchers who want to simulate exchange activity or characterize how orders and prices evolve. The document itself does not explain the models, compare their assumptions, or provide implementation guidance or empirical results. Readers will need to consult the cited papers to assess which arrival processes, state variables, and market assumptions fit their data and simulation goals.

Key ideas

  • The response recommends classical papers on stochastic limit order book dynamics.
  • A Markovian framework is one cited approach to modeling price evolution.
  • A high-frequency data survey can provide context on empirical facts and modeling challenges.
  • The document lists references but does not evaluate their assumptions or results.

Tags

Market microstructureStatisticsHigh-frequency trading
Full text
# What are good papers on order book dynamics?


# What are good papers on order book dynamics?












I want to simulate a limit order book. For this I want a statistical model to model arrival of orders in the exchange. I would be thankful if anyone can point me in direction of relevant literature.

## Answer by ShuXue (score 3)

https://quant.stackexchange.com/a/50625

Here are some classical papers:

Cont, Stoikov, Talreja: A stochastic model for order book dynamics, 2010 https://pubsonline.informs.org/doi/abs/10.1287/opre.1090.0780

Cont, Larrard (2013) Price dynamics in a Markovian limit order book market, SIAM Journal for Financial Mathematics, Vol 4, No 1, 1-25, 2013. https://epubs.siam.org/doi/abs/10.1137/110856605

Statistical Modeling of High Frequency Financial Data: Facts, Models and Challenges. IEEE Signal Processing, Volume 28 (2011). http://rama.cont.perso.math.cnrs.fr/pdf/IEEE2011.pdf

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