Multi-Agent–Based Order Book Model of Financial Markets

We introduce a simple model for simulating financial markets, based on an order book, in which several agents trade one asset at a virtual exchange continuously. For a stationary market the structure of the model, the order flow rates of the different kinds of order types and the used price time priority matching algorithm produce only a diffusive price behavior. We show that a market trend, i.e. an asymmetric order flow of any type, leads to a non-trivial Hurst exponent for the price development, but not to 'fat-tailed' return distributions. When one additionally couples the order entry depth to the prevailing trend, also the stylized empirical fact of 'fat tails' can be reproduced by our Order Book Model