High-Resilience Limits of Block-Shaped Order Books
classification
💱 q-fin.TR
math.OCmath.PRq-fin.PM
keywords
orderalmgrenblock-shapedbookchrissmodelobizhaevawang
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We show that wealth processes in the block-shaped order book model of Obizhaeva/Wang converge to their counterparts in the reduced-form model proposed by Almgren/Chriss, as the resilience of the order book tends to infinity. As an application of this limit theorem, we explain how to reduce portfolio choice in highly-resilient Obizhaeva/Wang models to the corresponding problem in an Almgren/Chriss setup with small quadratic trading costs.
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