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A correction note for price dynamics in a markovian limit order market

Published version
Peer-reviewed

Repository DOI


Type

Article

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Authors

Geliang, Z 
Hugh, C 
Li, G 
Godsill, S 

Abstract

A previously published and widely quoted paper, Price Dynamics in a Markovian Limit Order Market, has provided analytic solutions for many interesting quantities for the price dynamics of the limit order book. However, for unbalanced order flow cases, one of its major results, the price increase probability conditional on the state of the limit order book is found to be incorrect due to its citing an erroneous formula from another paper. We correct this error by proposing another analytical solution using the characteristic functions of probability distributions. The final analytical solution presented in this paper is of a simple form and easy to calculate.

Description

Keywords

limit order book, random walk, price dynamics, hitting probability

Journal Title

SIAM Journal on Financial Mathematics

Conference Name

Journal ISSN

1945-497X
1945-497X

Volume Title

Publisher

Society for Industrial & Applied Mathematics (SIAM)
Sponsorship
Engineering and Physical Sciences Research Council (EP/K020153/1)
Thanks to Cambridge Commonwealth, European and International Trust to provide financial support.