Multilayer networks give us the chance to represent the multiplicity of relations among financial operators. In particular, such a framework provides the natural environment for depicting both the informative diffusion and the transactions phase in separate, though interacting, network levels. In this paper, we present a two-layer order book model; this implements information spreading on the first layer, which exhibits self- organized criticality (SOC) to describe herding behavior among traders, and financial trading on the second one. Like its single-layer version (see, for example, Biondo et al 2015), this model is also based on the relevant role played by individual imitation in determining trading decisions; but the introduction of the order book layer now makes the price-formation mechanism much more realistic. Despite the simplifying assumptions in the trading dynamics, the results of numerical simulations show fat- tailed distributions of financial returns and other interesting features typical of real financial markets.

A multilayer model of order book dynamics

BIONDO, ALESSIO EMANUELE;PLUCHINO, ALESSANDRO;RAPISARDA, Andrea
2016

Abstract

Multilayer networks give us the chance to represent the multiplicity of relations among financial operators. In particular, such a framework provides the natural environment for depicting both the informative diffusion and the transactions phase in separate, though interacting, network levels. In this paper, we present a two-layer order book model; this implements information spreading on the first layer, which exhibits self- organized criticality (SOC) to describe herding behavior among traders, and financial trading on the second one. Like its single-layer version (see, for example, Biondo et al 2015), this model is also based on the relevant role played by individual imitation in determining trading decisions; but the introduction of the order book layer now makes the price-formation mechanism much more realistic. Despite the simplifying assumptions in the trading dynamics, the results of numerical simulations show fat- tailed distributions of financial returns and other interesting features typical of real financial markets.
Multilayer Networks; Order Book; Financial Markets
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/20.500.11769/18809
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