Forums  > Trading  > Simulating HFT strategies with L/M order arrival and cancellation rate parametrs calibrated to Market  
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Total Posts: 264
Joined: Aug 2005
Posted: 2017-12-11 18:51
Dear Friends,

Would someone be interested in the programs for real time construction of the limit order book in electronic format from Nasdaq ITCH or other protocols. Once the limit order book has been properly modelled, we can calibrate stochastic Limit and market order arrival/cancellation rates intelligently to the particular exchange market at some time stage and then run different market making and other strategies in the modelled market and see how the market strategies would fare in different market moods and scenarios and also be able to improve the strategies based on the stochastic order arrivals model of the market.
Regarding stochastic limit order flow modelling, these order flows can be modelled as point processes with stochastic intensity or Hawkes. There are autoregressive conditional intensity models. I believe we can calibrate stochastic intensity parameters to the market of the particular day and use these stochastic intensities to generate monte carlo simulation of order flows. And then test our trading and market making strategies in the simulated market .
We could also make various modules so as to make it very very easy for the customers to access the state of Limit Order book on every level, do monte carlo with orders arrival, and very easily specify their trading strategies and backtest them on both historical and simulated monte carlo data. And also suggest some LOB analytics for the customers. I believe if we could successfully accomplish this, there would not be many data vendors in competition.
I think many academics have not followed the route of full LOB construction with monte carlo simulation of order arrival rates since they mostly rely on LOBSTER limit order book time snapshots for limit order book analytics and they do not have limit order book in intuitive electronic format that easily changes the state of the Limit order book on every trade event. In most of the academic papers, I see reference to LOBSTER data source and academics can bypass electronic construction of the book from itch data. Lobster Data's web site:
I want to mention LOBSTER Limit Order Book data service. They construct NASDAQ LOB(Limit Order Book) and then write the sequential LOB data till ten levels on both side of mind market in a text file. They charge about 5000 Euros for one year minimum required subscription.
We can trivially provide a service that is competitive since my LOB modelling program keeps Limit order book updated at every stage. There are many exchanges in Europe and other parts of the world that use itch format. I can very easily construct the limit order book for any other protocol that other exchanges have.
Please let me know if something like this interests some friends here and they would like to collaborate/sponsor/buy advanced research like this.
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