Functional modelling of volatility in the Swedish limit order book

Suad Elezovic

Computational Statistics & Data Analysis, 2009, vol. 53, issue 6, 2107-2118

Abstract: The publicly available electronic limit order book at the Stockholm Stock Exchange consists of five levels of prices and quantities of a given stock with a bid and ask side. All changes in the book during one day can be recorded with a time quote. Studying the variation of the quoted price returns as a function of quantity is discussed. In particular, discovering and modelling dynamic behaviours in the volatility of prices and liquidity measures are considered. Applying a functional approach, estimation of the volatility dynamics of the spreads, created as differences between the ask and bid prices, is presented through a case study. For that purpose two-step estimation of functional linear models is used, extending this method to a time series context.

Date: 2009
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