This paper provides a road map for building a contingent claims theory of limit order markets grounded in a simple … flow. However, limit orders are not conventional derivative securities: order flow is an endogenous, non-price state …

fundamentals, focusing primarily on temperature. We show that when theory clearly identifies the fundamental, i.e., at temperatures …-thirds of the entire winter return variability occurs on these days. Moreover, when theory suggests no such relation, i.e., at … is good news for the theory and for market efficiency, not bad news. In terms of residual FCOJ return volatility, we also …