Order book modeling and financial stability

• DOI: 10.1007/s11403-018-0227-6
• Publication Date: 2018-08-25T08:14:22Z
• Authors: Alessio Emanuele ...
• Keywords: 0502 economics and business; 05 social sciences; Agent based models; Financial stability; Order book; Simulations; Business and International Management; Economics and Econometrics

This paper presents an agent-based model of the financial order book, and investigates whether the volatility of market prices can be reduced by means of specific policy interventions. The model is able to replicate the salient stylized facts of empirical data. Simulations show how market volatility is affected by two types of factors: individual characteristics of traders (i.e., behavioral heterogeneity, willingness to pay, and reaction to informative signals), and micro-structural features of the order book (i.e., the duration of limit orders and the number of allowed counterparts for market orders).