Censored EM algorithm for Weibull mixtures: application to arrival times of market orders

Markus Kreer, Ayse Kizilersu and Anthony W. Thomas

Papers from arXiv.org

Abstract: In a previous analysis the problem of "zero-inflated" time data (caused by high frequency trading in the electronic order book) was handled by left-truncating the inter-arrival times. We demonstrated, using rigorous statistical methods, that the Weibull distribution describes the corresponding stochastic dynamics for all inter-arrival time differences except in the region near zero. However, since the truncated Weibull distribution was not able to describe the huge "zero-inflated" probability mass in the neighbourhood of zero (making up approximately 50\% of the data for limit orders), it became clear that the entire probability distribution is a mixture distribution of which the Weibull distribution is a significant part. Here we use a censored EM algorithm to analyse data for the difference of the arrival times of market orders, which usually have a much lower percentage of zero inflation, for four selected stocks trading on the London Stock Exchange.

Date: 2020-12
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