nep-mst New Economics Papers
on Market Microstructure
Issue of 2023‒05‒22
two papers chosen by
Thanos Verousis

  1. Recurrent neural network based parameter estimation of Hawkes model on high-frequency financial data By Kyungsub Lee
  2. Asymptotic Expansions for High-Frequency Option Data By Carsten H. Chong; Viktor Todorov

  1. By: Kyungsub Lee
    Abstract: This study examines the use of a recurrent neural network for estimating the parameters of a Hawkes model based on high-frequency financial data, and subsequently, for computing volatility. Neural networks have shown promising results in various fields, and interest in finance is also growing. Our approach demonstrates significantly faster computational performance compared to traditional maximum likelihood estimation methods while yielding comparable accuracy in both simulation and empirical studies. Furthermore, we demonstrate the application of this method for real-time volatility measurement, enabling the continuous estimation of financial volatility as new price data keeps coming from the market.
    Date: 2023–04
  2. By: Carsten H. Chong; Viktor Todorov
    Abstract: We derive a nonparametric higher-order asymptotic expansion for small-time changes of conditional characteristic functions of It\^o semimartingale increments. The asymptotics setup is of joint type: both the length of the time interval of the increment of the underlying process and the time gap between evaluating the conditional characteristic function are shrinking. The spot semimartingale characteristics of the underlying process as well as their spot semimartingale characteristics appear as leading terms in the derived asymptotic expansions. The analysis applies to a general class of It\^o semimartingales that includes in particular L\'evy-driven SDEs and time-changed L\'evy processes. The asymptotic expansion results are of direct use for constructing nonparametric estimates pertaining to the stochastic volatility dynamics of an asset from high-frequency data of options written on the underlying asset.
    Date: 2023–04

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