Estimation of zero-intelligence models by L1 data

DOI10.1080/14697688.2016.1149612MaRDI QIDQ4554513zbMATH OpenOpenAlexFDO

Authors Martin Šmíd

Publication date 14 November 2018

Published in Quantitative Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1504.05714

zbMATH Keywords

stochastic modelslimit order marketeconometric methods

Mathematics Subject Classification ID

Applications of statistics to actuarial sciences and financial mathematics (62P05) Statistical methods; risk measures (91G70)

Abstract: A unit volume zero intelligence (ZI) model is defined and the distribution of its L1 process is recursively described. Further, a generalized ZI (GZI) model allowing non-unit market orders, shifts of quotes and general in-spread events is proposed and a formula for the conditional distribution of its quotes is given, together with a formula for price impact. For both the models, MLE estimators are formulated and shown to be consistent and asymptotically normal. Consequently, the estimators are applied to data of six US stocks from nine electronic markets. It is found that more complex variants of the models, despite being significant, do not give considerably better predictions than their simple versions with constant intensities.

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Cited in

(5)

• Improvements in estimating the probability of informed trading models
• Zero-intelligence realized variance estimation.
• Distribution of price and volume in a call auction
• A behavioral finance-based tick-by-tick model for price and volume
• Statistical inferences for price staleness

Describes a project that uses

Uses Software

• NLopt

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