Multivariate Hawkes-based Models in LOB: European, Spread and Basket Option Pricing

Qi Guo, Anatoliy Swishchuk and Bruno R\'emillard

Papers from arXiv.org

Abstract: In this paper, we consider pricing of European options and spread options for Hawkes-based model for the limit order book. We introduce multivariate Hawkes process and the multivariable general compound Hawkes process. Exponential multivariate general compound Hawkes processes and limit theorems for them, namely, LLN and FCLT, are considered then. We also consider a special case of one-dimensional EMGCHP and its limit theorems. Option pricing with $1D$ EGCHP in LOB, hedging strategies, and numerical example are presented. We also introduce greeks calculations for those models. Margrabe's spread options valuations with Hawkes-based models for two assets and numerical example are presented. Also, Margrabe's spread option pricing with two $2D$ EMGCHP and numerical example are included. Basket options valuations with numerical example are included. We finally discuss the implied volatility and implied order flow. It reveals the relationship between stock volatility and the order flow in the limit order book system. In this way, the Hawkes-based model can provide more market forecast information than the classical Black-Scholes model.

Date: 2022-09
New Economics Papers: this item is included in nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2209.07621 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2209.07621

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().