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Faculty of Actuarial Science and Insurance Seminar with Manuel Morales
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On an Agent-based Simulator Model for the Limit-Order-Book and its Applications to Measuring Price Impact
Abstract:
In this paper we discuss an agent-based simulator model for financial market prices through a Limit-Order-Book (LOB) dynamics. We study its implementation as a tool to measure the price impact function of meta-orders. Based on the existing literature on agent-based models, we build an event-driven simulation model for the order flow dynamics in a limit order book. The proposed model retains most of its most-sought simplicity while still reproducing key stylized features of the LOB.
Moreover, the event-driven procedure would allow for an efficient dialog with trading algorithms thus making it suitable to explore further the universality of the so-called square root law of price impact. In order to carry out such study, we calibrate our model to LOB data from the Toronto Stock Exchange and we use this simulator to empirically study the price impact function. Our conclusions point to a simulator engine capable to replicate price impact functions that are compatible with the reported findings in the literature. This is on-going work but we argue that a potential application of such calibrated model could be that of a benchmark testing environment for intra-day trading strategies seeking to minimize their market impact imprint.
The talk is based on a joint work with Nazim Regnard.
Where
Room 2005
106 Bunhill Row, London, EC1Y 8TZ, Great Britain (UK)
Speakers
Manuel Morales
University of Montreal
I am currently an Associate Professor in the Department of Mathematics and Statistics at the University of Montreal. I have a Ph.D. in Mathematics (2003) from Concordia University and I have been a faculty member at the University of Montreal since 2005.
My main research interests are in the fields of Ruin Theory and Mathematical Finance. I teach courses in the actuarial and financial mathematics programs at the undergraduate and graduate level. I am also responsible for supervising Master's and Ph.D. students working in Insurance Mathematics and Financial Mathematics.