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A multilayer model of order book dynamics

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  • Alessio Emanuele Biondo
  • Alessandro Pluchino
  • Andrea Rapisarda

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 fattailed;distributions of financial returns and other interesting features typical of real;financial markets

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Handle: RePEc:rsk:journ8:2472271
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