|
on Market Microstructure |
| By: | Ioane Muni Toke; Nakahiro Yoshida |
| 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. Several illustrations are provided. |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1805.06682&r=mst |
| By: | Ioane Muni Toke (MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec); Nakahiro Yoshida (Graduate school of mathematics - The University of Tokyo) |
| 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. Several illustrations are provided. |
| Keywords: | spread,imbalance,ratio model,trading signals,Cox model,order book models,point processes |
| Date: | 2018–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01799398&r=mst |
| By: | Acciaio, Beatrice; Larsson, Martin; Schachermayer, Walter |
| Abstract: | Semi-static trading strategies make frequent appearances in mathematical finance, where dynamic trading in a liquid asset is combined with static buy-and-hold positions in options on that asset. We show that the space of outcomes of such strategies can have very poor closure properties when all European options for a fixed date T are available for static trading. This causes problems for optimal investment, and stands in sharp contrast to the purely dynamic case classically considered in mathematical finance. |
| Keywords: | semi-static trading strategies; semi-static completeness; semi-static replication |
| JEL: | F3 G3 |
| Date: | 2017–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:69804&r=mst |
| By: | Babus, Ana; Kondor, Peter |
| Abstract: | We propose a model of trade in over-the-counter (OTC) markets in which each dealer with private information can engage in bilateral transactions with other dealers, as determined by her links in a network. Each dealer's strategy is represented as a quantity-price schedule. We analyze the effect of trade decentralization and adverse selection on information diffusion, expected profits, trading costs and welfare. Information diffusion through prices is not affected by dealers' strategic trading motives, and there is an informational externality that constrains the informativeness of prices. Trade decentralization can both increase or decrease welfare. A dealer's trading cost is driven by both her own and her counterparties' centrality. Central dealers tend to learn more, trade more at lower costs and earn higher expected profit |
| Keywords: | information aggregation; bilateral trading; demand schedule equilibrium; trading networks. |
| JEL: | D82 D85 G14 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:88050&r=mst |
| By: | Tom Auld; Oliver Linton |
| Abstract: | We study the behaviour of the Betfair betting market and the sterling/dollar exchange rate (futures price) during 24 June 2016, the night of the EU referendum. We investigate how the two markets responded to the announcement of the voting results. We employ a Bayesian updating methodology to update prior opinion about the likelihood of the final outcome of the vote. We then relate the voting model to the real time evolution of the market determined prices as results are announced. We find that although both markets appear to be inefficient in absorbing the new information contained in vote outcomes, the betting market is apparently less inefficient than the FX market. The different rates of convergence to fundamental value between the two markets leads to highly profitable arbitrage opportunities. |
| Keywords: | EU Referendum, prediction markets, machine learning, efficient markets hypothesis, pairs trading, cointegration, Bayesian methods, exchange rates. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:msh:ebswps:2018-10&r=mst |
| By: | Endres, Sylvia; Stübinger, Johannes |
| Abstract: | This paper develops the regime classification algorithm and applies it within a fully-edged pairs trading framework on minute-by-minute data of the S&P 500 constituents from 1998 to 2015. Specifically, the highly flexible algorithm automatically determines the number of regimes for any stochastic process and provides a complete set of parameter estimations. We demonstrate its performance in a simulation study - the algorithm achieves promising results for the general class of Lévy-driven Ornstein-Uhlenbeck processes with regime switches. In our empirical back-testing study, we apply our regime classification algorithm to propose a high-frequency pair selection and trading strategy. The results show statistically and economically significant returns with an annualized Sharpe ratio of 3.92 after transaction costs - results remain stable even in recent years. We compare our strategy with existing quantitative trading frameworks and find its results to be superior in terms of risk and return characteristics. The algorithm takes full advantage of its flexibility and identifies various regime patterns over time that are well-documented in the literature. |
| Keywords: | Finance,Pairs trading,Statistical arbitrage,Markov regime switching,Lévy-driven Ornstein-Uhlenbeck process,High-frequency data |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwqwdp:072018&r=mst |