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Probability and Computational Finance Seminar
Christopher Almost
Carnegie Melllon University
Title: Diffusion scaling of a limit order book model

Abstract: Trading in modern financial markets takes place primarily via a continuous double auction in which participants submit limit orders, offers to transact a given quantity at a given price, which may be cancelled at any time, and market orders that are executed against preexisting limit orders. Modelling the limit order book is inherently high-dimensional and the most natural description of the dynamics of the order flows has them depend on the state of the book in a discontinuous way. We examine a popular discrete model from the literature and describe its limit under a diffusion scaling inspired by queueing theory. Interesting features include a process that is either constant or diffusing according to whether another diffusion is positive or negative, and convergence to this process is obtained in the Skorokhod M_1 topology.

Date: Monday, October 5, 2015
Time: 4:30 pm
Location: Wean Hall 8220
Submitted by:  Steve Shreve