Abstract
Using our recently introduced order book model of financial markets we analyzed two different matching principles for order allocation — price-time priority and pro rata matching. Price-time priority uses the submission timestamp which prioritizes orders in the book with the same price. The order which was entered earliest at a given price limit gets executed first. Pro rata matching is used for products with low intraday volatility of best bid and best ask price. Pro rata matching ensures constant access for orders of all sizes. We demonstrate how a multiagent-based model of financial market can be used to study microscopic aspects of order books.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Daniels MG, Farmer JD, Gillemot L, Iori G, Smith E (2003) Quantitative model of price diffusion and market friction based on trading as a mechanistic random process. Physical Review Letters 90:108102
Smith E, Farmer JD, Gillemot L, Krishnamurthy S (2003) Statistical theory of the continuous double auction. Quantitative Finance 3:481–514
Preis T, Golke S, Paul W, Schneider JJ (2006) Multi-agent-based order book model of financial markets. Europhysics Letters 75:510–516
Preis T, Golke S, Paul W, Schneider JJ (2007) Statistical analysis of financial returns for a multiagent order book model of asset trading. Physical Review E 76:016108
Maslov S, Mills M (2001) Price fluctuations from the order book perspective — empirical facts and a simple model. Physica A 299:234–246
Bassler KE, Gunaratne GH, McCauley JL (2006) Markov processes, Hurst exponents, and nonlinear diffusion equations: With application to finance. Physica A 369:343–353
McCauley JL, Gunaratne GH, Bassler KE (2007) Hurst exponents, Markov processes, and fractal Brownian motion. Physica A 379:1–9
Preis T (2011) Okonophysik — Die Physik des Finanzmarktes. Gabler Research, Springer Fachmedien Wiesbaden
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2011 Springer-Verlag Italia
About this chapter
Cite this chapter
Preis, T. (2011). Price-Time Priority and Pro Rata Matching in an Order Book Model of Financial Markets. In: Abergel, F., Chakrabarti, B.K., Chakraborti, A., Mitra, M. (eds) Econophysics of Order-driven Markets. New Economic Windows. Springer, Milano. https://doi.org/10.1007/978-88-470-1766-5_5
Download citation
DOI: https://doi.org/10.1007/978-88-470-1766-5_5
Publisher Name: Springer, Milano
Print ISBN: 978-88-470-1765-8
Online ISBN: 978-88-470-1766-5
eBook Packages: Business and EconomicsEconomics and Finance (R0)