Market Microstructure
http://lists.repec.org/mailman/listinfo/nep-mst
Market Microstructure2015-08-25Thanos VerousisRock around the clock: an agent-based model of low- and high-frequency trading
http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01070542&r=mst
We build an agent-based model to study how the interplay between low- and high frequency trading affects asset price dynamics. Our main goal is to investigate whether high-frequency trading exacerbates market volatility and generates flash crashes. In the model, low-frequency agents adopt trading rules based on chronological time and can switch between fundamentalist and chartist strategies. On the contrary, high-frequency traders activation is event-driven and depends on price the contrary, high-frequency traders activation is event-driven and depends on price formation produced by low-frequency traders. Monte-Carlo simulations reveal that the model replicates the main stylized facts of financial markets. Furthermore, we found that the presence of high-frequency trading increases market volatility and plays a fundamental role in the generation of flash crashes. The emergence of flash crashes is explained by two salient characteristics of high-frequency traders, i.e., their ability to i) generate high bid-ask spreads and ii) synchronize on the sell side of the limit order book. Finally, we found that higher rates of order cancellation by high-frequency traders increase the incidence of flash crashes but reduce their duration.Sandrine Jacob Leal, Mauro Napoletano, Andrea Roventini, Giorgio Fagiolo2014-02Liquidity Supply across Multiple Trading Venues
http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01137813&r=mst
Financial markets are increasingly fragmented. How to supply liquidity in this environment? Using an inventory model, we analyze how two strategic intermediaries compete across two venues that can be hit simultaneously by liquidity shocks of equal or opposite signs. Although order flow is fragmented ex-ante, we show that intermediaries might strategically consolidate it ex-post, improving global liquidity. We also find that local spreads co-move together across venues as a result of global inventory management. Using Euronext proprietary data, we uncover new evidence of inventory control across venues and find that local spreads vary in a way uniquely predicted by the model.Laurence Lescourret, Sophie Moinas2015-03-15An optimal trading problem in intraday electricity markets *
http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01104829&r=mst
We consider the problem of optimal trading for a power producer in the context of intraday electricity markets. The aim is to minimize the imbalance cost induced by the random residual demand in electricity, i.e. the consumption from the clients minus the production from renewable energy. For a simple linear price impact model and a quadratic criterion, we explicitly obtain approximate optimal strategies in the intraday market and thermal power generation, and exhibit some remarkable properties of the trading rate. Furthermore, we study the case when there are jumps on the demand forecast and on the intraday price, typically due to error in the prediction of wind power generation. Finally, we solve the problem when taking into account delay constraints in thermal power production.René Aïd, Pierre Gruet, Huyên Pham2015-01-19LARGE DEVIATIONS OF THE THRESHOLD ESTIMATOR OF INTEGRATED (CO-)VOLATILITY VECTOR IN THE PRESENCE OF JUMPS
http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01147189&r=mst
Recently a considerable interest has been paid on the estimation problem of the realized volatility and covolatility by using high-frequency data of financial price processes in financial econometrics. Threshold estimation is one of the useful techniques in the inference for jump-type stochastic processes from discrete observations. In this paper, we adopt the threshold estimator introduced by Mancini where only the variations under a given threshold function are taken into account. The purpose of this work is to investigate large and moderate deviations for the threshold estimator of the integrated variance-covariance vector. This paper is an extension of the previous work in Djellout Guillin and Samoura where the problem has been studied in absence of the jump component. We will use the approximation lemma to prove the LDP. As the reader can expect we obtain the same results as in the case without jump.Hacène Djellout, Hui Jiang2015-04-03Efficient Estimation for Diffusions Sampled at High Frequency Over a Fixed Time Interval
http://d.repec.org/n?u=RePEc:aah:create:2015-33&r=mst
Parametric estimation for diffusion processes is considered for high frequency observations over a fixed time interval. The processes solve stochastic differential equations with an unknown parameter in the diffusion coefficient. We find easily verified conditions on approximate martingale estimating functions under which estimators are consistent, rate optimal, and efficient under high frequency (in-fill) asymptotics. The asymptotic distributions of the estimators are shown to be normal variance-mixtures, where the mixing distribution generally depends on the full sample path of the diffusion process over the observation time interval. Utilising the concept of stable convergence, we also obtain the more easily applicable result that for a suitable data dependent normalisation, the estimators converge in distribution to a standard normal distribution. The theory is illustrated by a small simulation study comparing an efficient and a non-efficient estimating function.Nina Munkholt Jakobsen, Michael Sørensen2015-08-06Approximate martingale estimating functions, discrete time sampling of diffusions, in-fill asymptotics, normal variance-mixtures, optimal rate, random Fisher information, stable convergence, stochastic differential equation.