LOB modeling using Hawkes processes with a state-dependent factor

Emmanouil Sfendourakis and Ioane Muni Toke ()
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Emmanouil Sfendourakis: MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec - Université Paris-Saclay
Ioane Muni Toke: MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec - Université Paris-Saclay

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Abstract: A point process model for order flows in limit order books is proposed, in which the conditional intensity is the product of a Hawkes component and a state-dependent factor. In the LOB context, state observations may include the observed imbalance or the observed spread. Full technical details for the computationally-efficient estimation of such a process are provided, using either direct likelihood maximization or EM-type estimation. Applications include models for bid and ask market orders, or for upwards and downwards price movements. Empirical results on multiple stocks traded in Euronext Paris underline the benefits of state-dependent formulations for LOB modeling, e.g. in terms of goodness-of-fit to financial data.

Date: 2023-04-10
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Published in Market microstructure and liquidity, 2023, ⟨10.1142/S2382626620500148⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03417460

DOI: 10.1142/S2382626620500148

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