Bridging the Reality Gap in Limit Order Book Simulation
Fuente:
arXiv
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| Autori principali: | , , |
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| Natura: | Preprint |
| Pubblicazione: |
2026
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| _version_ | 1866914420601389056 |
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| author | Noble, Patrick Rosenbaum, Mathieu Souilmi, Saad |
| author_facet | Noble, Patrick Rosenbaum, Mathieu Souilmi, Saad |
| contents | We introduce a practical, interactive simulator of the limit order book for large-tick assets, designed to produce realistic execution, costs, and P&L. The book state is projected onto a tractable representation based on spread and volume imbalance, enabling robust estimation from market data. Event timing is calibrated to reproduce the fine-scale temporal structure of real markets, revealing a pronounced mode at exchange round-trip latency consistent with simultaneous reactions and latency races among participants. We further incorporate a feedback mechanism that accumulates signed trade flow through a power-law decay kernel, reproducing both concave market impact during execution and partial post-trade reversion. Across several stocks and strategy case studies, the simulator yields realistic behavior where profitability becomes highly sensitive to execution parameters. We present the approach as a practical recipe: project, estimate, validate, adapt, for building realistic limit order book simulations. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2603_24137 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | Bridging the Reality Gap in Limit Order Book Simulation Noble, Patrick Rosenbaum, Mathieu Souilmi, Saad Trading and Market Microstructure We introduce a practical, interactive simulator of the limit order book for large-tick assets, designed to produce realistic execution, costs, and P&L. The book state is projected onto a tractable representation based on spread and volume imbalance, enabling robust estimation from market data. Event timing is calibrated to reproduce the fine-scale temporal structure of real markets, revealing a pronounced mode at exchange round-trip latency consistent with simultaneous reactions and latency races among participants. We further incorporate a feedback mechanism that accumulates signed trade flow through a power-law decay kernel, reproducing both concave market impact during execution and partial post-trade reversion. Across several stocks and strategy case studies, the simulator yields realistic behavior where profitability becomes highly sensitive to execution parameters. We present the approach as a practical recipe: project, estimate, validate, adapt, for building realistic limit order book simulations. |
| title | Bridging the Reality Gap in Limit Order Book Simulation |
| topic | Trading and Market Microstructure |
| url | https://arxiv.org/abs/2603.24137 |