Economy – Quantitative Finance – Trading and Market Microstructure
Scientific paper
2010-12-01
Economy
Quantitative Finance
Trading and Market Microstructure
35 pages, 7 figures
Scientific paper
As the pricing mechanism in more than half the world's financial markets, limit order books have featured extensively in the published literature from a wide range of disciplines over the past decade. This survey highlights the similarities and differences between key empirical and theoretical publications that have advanced understanding of limit order books to date. Despite clear advances, a substantial chasm still remains between observations from empirical studies of limit order books and models that attempt to replicate them. In particular, many modelling assumptions are poorly supported by data, and several well-established empirical facts remain absent from model outputs. By examining existing limit order book models, we identify the key unresolved questions and difficulties facing researchers of limit order trading today.
Fenn Daniel J.
Gould Martin D.
Howison Sam D.
McDonald Mark
Porter Mason A.
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