A simple microstructure model based on the Cox-BESQ process with application to optimal execution policy

José Da Fonseca and Yannick Malevergne

Journal of Economic Dynamics and Control, 2021, vol. 128, issue C

Abstract: We develop a microstructure model whose order flow is driven by a Cox-BESQ process. We derive important analytical properties of the Cox-BESQ process in order to explicit the stock price dynamics at different time scales, provide different parameter estimators and solve the optimal execution problem. We implement the model using a large data set of stock index and bond futures. Our results show that the Cox-BESQ process provides an alternative framework to the Hawkes process to build a microstructure model that is very flexible and has an explicit solution.

Keywords: Microstructure model; Stochastic intensity model; Cox-BESQ process; Optimal execution (search for similar items in EconPapers)
JEL-codes: C13 C32 C58 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:128:y:2021:i:c:s0165188921000725

DOI: 10.1016/j.jedc.2021.104137

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