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Relative Volume as a Doubly Stochastic Binomial Point Process

James McCulloch

No 146, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: If intra-day volume is modelled as a Cox point process, then relative intra-day cumulative volume (intra-day cumulative volume divided by final total volume) is shown to be a novel generalization of a binomial point process; the doubly stochastic binomial point process. Re-scaling the intra-day traded volume to a relative volume between 0 (no volume traded) and 1 (daily trading completed) allows empirical intra-day volume distribution information for all stocks to be used collectively to estimate and identify the random intensity component of the binomial point process and closely related Cox point process. This is useful for Volume Weighted Average Price (VWAP) traders who require a stochastic model of relative intra-day cumulative volume to implement risk-optimal VWAP trading strategies.

Keywords: binomial; point process; doubly stochastic; relative volume; Cox process, random probability measure; VWAP; volume weighted average pricing; NYSE; New York Stock Exchange (search for similar items in EconPapers)
Pages: 22 pages
Date: 2005-01-01
New Economics Papers: this item is included in nep-fin and nep-fmk
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Published as: McCulloch, J., 2007, "Relative Volume as a Doubly Stochastic Binomial Point Process", Quantitative Finance, 7(1), 55-62.

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https://www.uts.edu.au/sites/default/files/qfr-archive-02/QFR-rp146.pdf (application/pdf)

Related works:
Journal Article: Relative volume as a doubly stochastic binomial point process (2007) Downloads
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