nep-mst New Economics Papers
on Market Microstructure
Issue of 2019‒05‒13
three papers chosen by
Thanos Verousis

  1. Price and network dynamics in the European carbon market By Andreas Karpf; Antoine Mandel; Stefano Battiston
  2. The European intraday electricity market : a modeling based on the Hawkes process By Benjamin Favetto

  1. By: Andreas Karpf (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Antoine Mandel (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Stefano Battiston (CAMS - Centre d'analyse et de mathématique sociale - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper presents an analysis of the European Emission Trading System as a transaction network. It is shown that, given the lack of well-identified trading institutions, industrial actors had to resort to local connections and financial intermediaries to participate in the market. This gave rise to a hierarchical structure in the transaction network. It is then shown that the asymmetries in the network induced market inefficiencies (e.g., increased bid-ask spread) and informational asymmetries, that have been exploited by central agents at the expense of less central ones. Albeit the efficiency of the market has improved from the beginning of Phase II, the asymmetry persists, imposing unnecessary additional costs on agents and reducing the effectiveness of the market as a mitigation instrument.
    Keywords: Network,Carbon market,Climate change,Microstructure
    Date: 2018–09
  2. By: Benjamin Favetto (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This article deals with the modeling of the trading activity on the European electricity intraday market by a self-exciting point process (also known as Hawkes process). It gives some empirical evidence of self-excitement, and discuss the time-homogeneity of the baseline of the process. The question of the functional shape of the intensity kernel is also adressed. Finally, a parameter estimation procedure is derived for the model with a non-constant baseline.
    Keywords: Self-exciting point process,European electricity intraday market,change-point detection,parameter estimation
    Date: 2019–04–16
  3. By: Rama Cont (Department of Mathematics [Imperial College London] - Imperial College London, LPSM UMR 8001 - Laboratoire de Probabilités, Statistique et Modélisation - UPMC - Université Pierre et Marie Curie - Paris 6 - UPD7 - Université Paris Diderot - Paris 7 - CNRS - Centre National de la Recherche Scientifique); Marvin Muller (ETH Zürich - Eidgenössische Technische Hochschule - Swiss Federal Institute of Technology in Zürich [Zürich])
    Abstract: We propose an analytically tractable class of models for the dynamics of a limit order book, described as the solution of a stochastic partial differential equation (SPDE) with multiplicative noise. We provide conditions under which the model admits a finite dimensional realization driven by a (low-dimensional) Markov process, leading to efficient methods for estimation and computation. We study two examples of parsimonious models in this class: a two-factor model and a model in which the order book depth is mean-reverting. For each model we perform a detailed analysis of the role of different parameters, study the dynamics of the price, order book depth, volume and order imbalance, provide an intuitive financial interpretation of the variables involved and show how the model reproduces statistical properties of price changes, market depth and order flow in limit order markets.
    Date: 2019–04–04

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