Limit order market analysis and modelling: on an universal cause for over-diffusive prices

TL;DR

This paper analyzes limit order markets, proposing a universal framework and a simple particle model to explain short-term over-diffusive price behavior as an inherent non-equilibrium feature.

Contribution

It introduces a universal framework for limit order markets and models over-diffusive prices using a simple exclusion particle approach.

Findings

Over-diffusive prices are linked to non-equilibrium order dynamics.

The proposed model captures key features of real limit order markets.

Limit order market behavior can be understood through particle exclusion models.

Abstract

We briefly review data analysis of the Island order book, part of NASDAQ, which suggests a framework to which all limit order markets should comply. Using a simple exclusion particle model, we argue that short-time price over-diffusion in limit order markets is due to the non-equilibrium of order placement, cancellation and execution rates, which is an inherent feature of real limit order markets.