High-Frequency Quote Volatility Measurement Using a Change-Point Intensity Model

Zhicheng Li and Haipeng Xing
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Zhicheng Li: Center for Economics, Finance and Management Studies, Hunan University, Changsha 410006, China
Haipeng Xing: Department of Applied Math, Stony Brook University, Stony Brook, New York, NY 11790, USA

Mathematics, 2022, vol. 10, issue 4, 1-24

Abstract: Quote volatility is important in determining the cost of demand in a high frequency (HF) order market. This paper proposes a new model to measure quote volatility based on the point process and price-change duration. Specifically, we built a change-point intensity (CPI) model to describe the dynamics of price-change events for a given level of threshold. The instantaneous volatility of quote price can be calculated at any time according to price-change intensities. Based on this, we can quantify the cost of demanding liquidity for traders with different trading latency by using integrated variances. Furthermore, we use the autoregressive conditional intensity (ACI) model proposed by Russell (1999) as a benchmark comparison. The results suggest that our model has better performance of both in-sample fitness and out-of-sample prediction.

Keywords: quote volatility; price duration; change-point model (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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