High-Resilience Limits of Block-Shaped Order Books

Johannes Muhle-Karbe (ETH-Zürich)
Thursday, April 24, 2014 - 5:00pm
TU Berlin, Straße des 17. Juni 136, 10623 Berlin, Raum MA 041

We show that wealth processes in the block-shaped order book model of Obizhaeva and Wang converge to their counterparts in the reduced-form model of Almgren and Chriss as the resilience of the order book tends to infinity. As an application of this limit theorem, we obtain that optimal strategies in the Almgren/Chriss model with small quadratic trading costs are also asymptotically optimal for highly resilient block-shaped order books.

(This is a joint work with Jan Kallsen.)