Model for Price and Trades High-Frequency Dynamics

Emmanuel Bacry (Ecole Polytechnique Paris)
Monday, July 8, 2013 - 2:00pm
Spandauer Strasse 1, Room 23

We introduce a multivariate Hawkes process that accounts for the dynamics of market prices through the impact of market order arrivals at microstructural level. Our model is a point process mainly characterized by 4 kernels. It allows one to account for both stylized facts of market prices microstructure (including random time arrival of price moves, discrete price grid, high frequency mean reversion, correlation functions behavior at various time scales) and the stylized facts of market impact (mainly the concave-square-root-like/relaxation characteristic shape of the market impact of a meta-order). Moreover, it allows one to estimate the entire market impact profile from anonymous market data. We show that these kernels can be empirically estimated from the empirical conditional mean intensities.