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Correlation emergence in two coupled limit order books in the fluid limit
Weuse random walks to simulate the fluid limit of two coupled diffusive limit order books to model correlation emergence. The model implements the arrival, cancellation and diffusion of orders coupled by a pairs trader profiting from the mean-reversion between the two order-books in the fluid limit...
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| Format: | Thesis |
| Language: | English |
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Department of Statistical Sciences
2024
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| _version_ | 1867613164659539968 |
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| access_status_str | Open Access |
| author | Bauer, Dominic |
| author2 | Gebbie, Timothy |
| author_browse | Bauer, Dominic Gebbie, Timothy |
| author_facet | Gebbie, Timothy Bauer, Dominic |
| author_sort | Bauer, Dominic |
| collection | Thesis |
| description | Weuse random walks to simulate the fluid limit of two coupled diffusive limit order books to model correlation emergence. The model implements the arrival, cancellation and diffusion of orders coupled by a pairs trader profiting from the mean-reversion between the two order-books in the fluid limit for a Lit order book with vanishing boundary conditions and order volume conservation we are able to demonstrate the recovery of an Epps effect. We show how various stylised facts depend on the model parameters and the numerical scheme and discuss various strengths and weaknesses of the approach. We demonstrate how the Epps effect depends on different choices of time and price discretisation and show how an Epps effect can emerge without recourse to market microstructure effects. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/40753 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:31:47.142Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2024 |
| publishDateRange | 2024 |
| publishDateSort | 2024 |
| publisher | Department of Statistical Sciences |
| publisherStr | Department of Statistical Sciences |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/40753 Correlation emergence in two coupled limit order books in the fluid limit Bauer, Dominic Gebbie, Timothy online learning technical analysis portfolio selection backtesting overf itting in-sample out-of-sample Johannesburg Stock Exchange Weuse random walks to simulate the fluid limit of two coupled diffusive limit order books to model correlation emergence. The model implements the arrival, cancellation and diffusion of orders coupled by a pairs trader profiting from the mean-reversion between the two order-books in the fluid limit for a Lit order book with vanishing boundary conditions and order volume conservation we are able to demonstrate the recovery of an Epps effect. We show how various stylised facts depend on the model parameters and the numerical scheme and discuss various strengths and weaknesses of the approach. We demonstrate how the Epps effect depends on different choices of time and price discretisation and show how an Epps effect can emerge without recourse to market microstructure effects. 2024-11-28T08:14:51Z 2024-11-28T08:14:51Z 2024 2024-11-27T13:13:10Z Thesis / Dissertation Masters MSc http://hdl.handle.net/11427/40753 eng application/pdf Department of Statistical Sciences Faculty of Science University of Cape Town |
| spellingShingle | online learning technical analysis portfolio selection backtesting overf itting in-sample out-of-sample Johannesburg Stock Exchange Bauer, Dominic Correlation emergence in two coupled limit order books in the fluid limit |
| thesis_degree_str | Master's |
| title | Correlation emergence in two coupled limit order books in the fluid limit |
| title_full | Correlation emergence in two coupled limit order books in the fluid limit |
| title_fullStr | Correlation emergence in two coupled limit order books in the fluid limit |
| title_full_unstemmed | Correlation emergence in two coupled limit order books in the fluid limit |
| title_short | Correlation emergence in two coupled limit order books in the fluid limit |
| title_sort | correlation emergence in two coupled limit order books in the fluid limit |
| topic | online learning technical analysis portfolio selection backtesting overf itting in-sample out-of-sample Johannesburg Stock Exchange |
| url | http://hdl.handle.net/11427/40753 |
| work_keys_str_mv | AT bauerdominic correlationemergenceintwocoupledlimitorderbooksinthefluidlimit |