COMP0049 Market Microstructure

This database contains the 2018-19 versions of syllabuses.

Note: Whilst every effort is made to keep the syllabus and assessment records correct, the precise details must be checked with the lecturer(s).

Academic session



Market Microstructure



Module delivery

1819/A7P/T1/COMP0049 Postgraduate

Related deliveries


Prior deliveries




FHEQ Level


FHEQ credits



Term 1

Module leader

Righi, Simone


Righi, Simone

Pennesi, Paris

Module administrator

Nolan, Martin


The course is aimed at introducing the student to the functioning of financial markets based on Limit Order Books from a microstructure point of view, and to the resulting non-trivial empirical regularities. The course presents both the main empirical facts in modern financial markets and some of the theoretical methods used to model them. We will discuss the functioning of limit order driven markets, the price impact of orders, the distribution of returns, the liquidity patters and the bid-ask spreads, as well as the relationship between these and other related concepts. Further, we will dicuss zero-intelligence models to describe the high-frequency fluctuations in financial markets and models addressing the observed long memory of the trade sign process.

Learning outcomes

On successful completion of the module, a student will be able to:

  1. Understand the mechanisms that underpin the functioning of markets with Limit Order Book
  2. Recognize and characterize the main empirical facts emerging in modern financial markets
  3. Understand and characterize the price impact of orders and of their execution.
  4. Characterize the relationship between price impact, bid-ask spread, tick size, and liquidity.

Availability and prerequisites

This module delivery is available for selection on the below-listed programmes. The relevant programme structure will specify whether the module is core, optional, or elective.

In order to be eligible to select this module as optional or elective, where available, students must meet all prerequisite conditions to the satisfaction of the module leader. Places for students taking the module as optional or elective are limited and will be allocated according to the department’s module selection policy.

Programmes on which available:

  • MSc Computational Finance
  • MSc Financial Risk Management


In order to eligible to select this module, students must have:

  • the equivalent of a 2:1 UK bachelor's degree in computer science, mathematics, statistics, physics, engineering or another similar quantitative subject; and
  • a strong background with high performance in mathematics, probability, statistics and econometrics; and
  • English language at UCL's ‘Good’ level


This module provides the student with a structured overview over both the main empirical facts and major theoretical approaches in market microstructure. It will comprise of five main parts:

Introduction to limit order markets

The course explains the functioning and historical context of limit order driven markets and introduces the main concepts as well as regulatory issues.

Empirical investigation of financial data

The course covers the main robust empirical facts found in order driven financial markets, such as the distribution of returns, correlations between price changes and the volatility, the intraday pattern of liquidity and the bid-ask spread, and the long memory of the trade sign process. Simple models for the correlated sign process are discussed.

Price impact

This part focuses on the impact of order book events (market order submissions, limit order submissions, and cancellations) on the market price. Different price impact measures are introduced. The theoretical framework for trade sign correlations, impact and price efficiency is discussed. The impact of a trading strategy (meta-order) is introduced and different theories of meta-order impact are presented.

The limit order book as a queuing system

This part introduces zero-intelligence models to describe the high-frequency fluctuations in financial markets. The so-called Santa Fe model, the Cont & Larrard model and more complex approaches are discussed.

The relationship between impact, the bid-ask spread, the tick size, and liquidity

This part of the focus introduces regulatory issues related to limit order books. The most advanced theories which explain the relationship between the spread and impact on small-tick stocks, as well as the liquidity and impact on large-tick stocks, are presented. The course closes with a discussion on the optimal market design.

An indicative reading list is available via


The module is delivered through classroom-based lectures.


This module delivery is assessed as below:



Weight (%)



Written examination (2hrs 30mins)




In-class test



In order to pass this module delivery, students must achieve an overall weighted module mark of 50%.