Modelling Trades-Through in a Limit Order Book Using Hawkes Processes

Ioane Muni Toke (1, 2) , Fabrizio Pomponio (1, 2)

1 FiQuant - Chaire de finance quantitative
2 MAS - Mathématiques Appliquées aux Systèmes - EA 4037

The authors model trades-through, i.e. transactions that reach at least the second level of limit orders in an order book. Using tick-by-tick data on Euronext-traded stocks, they show that a simple bivariate Hawkes process fits nicely their empirical observations of tradesthrough. The authors show that the cross-influence of bid and ask trades-through is weak.

Domaines: Finance quantitative [q-fin.CP]; Probabilités [math.PR]

Ioane Muni Toke, Fabrizio Pomponio. Modelling Trades-Through in a Limit Order Book Using Hawkes Processes. Economics , 2012, 6 (2012-22), ⟨10.5018/economics-ejournal.ja.2012-22⟩. ⟨hal-00745554⟩