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arXiv · 1409.7269

High-Resilience Limits of Block-Shaped Order Books

Jan Kallsen·Johannes Muhle-Karbe
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Abstract

We show that wealth processes in the block-shaped order book model of Obizhaeva/Wang converge to their counterparts in the reduced-form model proposed by Almgren/Chriss, as the resilience of the order book tends to infinity. As an application of this limit theorem, we explain how to reduce portfolio choice in highly-resilient Obizhaeva/Wang models to the corresponding problem in an Almgren/Chriss setup with small quadratic trading costs.

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Jan Kallsen, Johannes Muhle-Karbe. 2014-09-25. High-Resilience Limits of Block-Shaped Order Books. https://arxiv.org/abs/1409.7269

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