A Generalized Langevin Model of Latent Liquidity and Concave Price Impact

Andrey Itkin · 2026 · SSRN Electronic Journal

DOI: 10.2139/ssrn.7537778 · cited by 0 works (OpenAlex) · open-access PDF

Abstract

We model market impact as the response to submitted order flow net of counterflow from latent traders, activated when price displacements from the level that would prevail without the order exceed individual thresholds. Order flow depletes this pool, and a generalized Langevin equation governs its recovery over several time scales. Its memory kernels are finite sums of exponentials, so its Markovian lift is exact rather than an approximation. For an undepleted pool, aggregation under explicit assumptions on individual trading responses yields an intermediate square-root regime between linear s

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Topics: Scaling, Econometrics, Markov process, Flow (mathematics), Mathematics, Order (exchange)

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