A Spread-Gated Hawkes-Flocking Model for Best Bid and Ask Dynamics, with an Application to Limit Order Placement

Hyoeun Lee and Kiseop Lee

Papers from arXiv.org

Abstract: We study the joint dynamics of the best bid and ask prices with a spread-gated Hawkes-flocking model. The model tracks four types of best-quote movements: spread-narrowing movements are switched off when the spread is at its one-tick minimum, and a cross-side excitation term, whose activation depends on the prevailing spread, links the two sides of the book. We show that the process is non-explosive on every finite horizon, give an $O(N)$ recursive likelihood, and validate the maximum likelihood estimator by simulation. On real intraday limit order book data for two large-tick stocks, INTC and MSFT, the restriction that removes the cross-side term is rejected, and the full model improves fit substantially by AIC and BIC; the likelihood is multimodal on a single day, so estimation uses a multi-start search. As an application, we derive the closed-form optimal size of a single-period limit order placed at the best or second-best quote, given the model's next-event probabilities and externally supplied execution probabilities.

Date: 2026-09
New Economics Papers: this item is included in nep-mst
References: Add references at CitEc
Citations:

Downloads: (external link)
https://arxiv.org/pdf/2609.36631 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:2609.36631

Access Statistics for this paper

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