Informatics and Applications
2014, Volume 8, Issue 4, pp 20-31
ON THE FORMALIZATION OF ORDER FLOW TOXICITY ON FINANCIAL MARKETS
Abstract
The paper considers the microstructural order flow model for financial markets. The order flow imbalance process is used as an integral indicator of the current state of the limit-order book. The model of order flow imbalance is used to analyze the properties of the current limit-order book state, which is considered as two-sided risk process with stochastic premiums. The concept of order flow toxicity on financial markets is studied. This concept is formalized with probabilities of crossing fixed levels by the order flow imbalance process. The paper introduces the concepts of the instantaneous toxicity profile and Bayesian and quantile indicators of toxicity. These indicators are calculated for two model types of order flows: the first one has unit volume orders and the second one consists of orders with random volume which has exponential distribution.
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[+] About this article
Title
ON THE FORMALIZATION OF ORDER FLOW TOXICITY ON FINANCIAL MARKETS
Journal
Informatics and Applications
2014, Volume 8, Issue 4, pp 20-31
Cover Date
2014-10-30
DOI
10.14357/19922264140403
Print ISSN
1992-2264
Publisher
Institute of Informatics Problems, Russian Academy of Sciences
Additional Links
Key words
financial markets; limit-order book; order flow; order flow imbalance; adverse selection; order flow toxicity; Poisson process; compound Poisson process; two-side risk process; risk process with stochastic premiums; ruin probability
Authors
A. V. Chertok  , 
Author Affiliations
Faculty of Computational Mathematics and Cybernetics, M.V. Lomonosov Moscow State University, 1-52 Leninskiye Gory, GSP-1, Moscow 119991, Russian Federation
Federation
Euphoria Group LLC, 9, bld. 1, of. 6 Arkhangelsky Lane, Moscow 101000, Russian Federation
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