A simple microstructure model based on the Cox-BESQ process with application to optimal execution policy

José Da Fonseca and Yannick Malevergne

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Abstract: We develop a microstructure model whose order flow is driven by a Cox-BESQ process. We derive important analytical properties of the Cox-BESQ process in order to explicit the stock price dynamics at different time scales, provide different parameter estimators and solve the optimal execution problem. We implement the model using a large data set of stock index and bond futures. Our results show that the Cox-BESQ process provides an alternative framework to the Hawkes process to build a microstructure model that is very flexible and has an explicit solution.

Keywords: Microstructure model; Stochastic intensity model; Cox-BESQ process; Optimal execution (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-mst
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03590382v1
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Citations: View citations in EconPapers (3)

Published in Journal of Economic Dynamics and Control, 2021, 128, pp.104137. ⟨10.1016/j.jedc.2021.104137⟩

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Journal Article: A simple microstructure model based on the Cox-BESQ process with application to optimal execution policy (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-03590382

DOI: 10.1016/j.jedc.2021.104137

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