Analyzing order flows in limit order books with ratios of Cox-type intensities

DOI10.1080/14697688.2019.1637927MaRDI QIDQ5215440zbMATH OpenOpenAlexWikidataFDO

Authors Ioane Muni Toke, Nakahiro Yoshida

Publication date 10 February 2020

Published in Quantitative Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1805.06682

zbMATH Keywords

Cox processesHawkes processesimbalanceorder book modelspoint processesratio modelsspreadtrading signals

Mathematics Subject Classification ID

Point processes (e.g., Poisson, Cox, Hawkes processes) (60G55) Financial markets (91G15)

Abstract: We introduce a Cox-type model for relative intensities of orders flows in a limit order book. The model assumes that all intensities share a common baseline intensity, which may for example represent the global market activity. Parameters can be estimated by quasi likelihood maximization, without any interference from the baseline intensity. Consistency and asymptotic behavior of the estimators are given in several frameworks, and model selection is discussed with information criteria and penalization. The model is well-suited for high-frequency financial data: fitted models using easily interpretable covariates show an excellent agreement with empirical data. Extensive investigation on tick data consequently helps identifying trading signals and important factors determining the limit order book dynamics. We also illustrate the potential use of the framework for out-of-sample predictions.

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Cited in

(12)

• Intraday trade and quote dynamics: A Cox regression analysis
• Quasi-likelihood analysis and its applications
• Quasi-likelihood analysis for marked point processes and application to marked Hawkes processes
• Marked point processes and intensity ratios for limit order book modeling
• A simple microstructure model based on the Cox-BESQ process with application to optimal execution policy
• Statistical inference for ergodic point processes and application to limit order book
• Estimating the efficient price from the order flow: a Brownian Cox process approach
• Modeling high-frequency non-homogeneous order flows by compound Cox processes
• Analysis of order book flows using a non-parametric estimation of the branching ratio matrix
• Modelling intensities of order flows in a limit order book
• Forecasting limit order book liquidity supply-demand curves with functional autoregressive dynamics
• Analysis and modeling of client order flow in limit order markets

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