Limit Order Books

TL;DR

This survey reviews empirical and theoretical research on limit order books, highlighting insights, modeling challenges, and unresolved questions about their mechanisms in financial markets.

Contribution

It provides a comprehensive overview of existing LOB models, critiques their limitations, and identifies key open research questions in the field.

Findings

Many models poorly match real LOB data

Several empirical facts remain unexplained by current models

Key unresolved questions about LOB dynamics

Abstract

Limit order books (LOBs) match buyers and sellers in more than half of the world's financial markets. This survey highlights the insights that have emerged from the wealth of empirical and theoretical studies of LOBs. We examine the findings reported by statistical analyses of historical LOB data and discuss how several LOB models provide insight into certain aspects of the mechanism. We also illustrate that many such models poorly resemble real LOBs and that several well-established empirical facts have yet to be reproduced satisfactorily. Finally, we identify several key unresolved questions about LOBs.