Get Real: Realism Metrics for Robust Limit Order Book Market Simulations

Abstract: Machine learning (especially reinforcement learning) methods for trading are increasingly reliant on simulation for agent training and testing. Furthermore, simulation is important for validation of hand-coded trading strategies and for testing hypotheses about market structure. A challenge, however, concerns the robustness of policies validated in simulation because the simulations lack fidelity. In fact, researchers have shown that many market simulation approaches fail to reproduce statistics and stylized facts seen in real markets. As a step towards addressing this we surveyed the literature to collect a set of reference metrics and applied them to real market data and simulation output. Our paper provides a comprehensive catalog of these metrics including mathematical formulations where appropriate. Our results show that there are still significant discrepancies between simulated markets and real ones. However, this work serves as a benchmark against which we can measure future improvement.