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High-Frequency Quote Volatility Measurement Using a Change-Point Intensity Model

Author

Listed:
  • Zhicheng Li

    (Center for Economics, Finance and Management Studies, Hunan University, Changsha 410006, China)

  • Haipeng Xing

    (Department of Applied Math, Stony Brook University, Stony Brook, New York, NY 11790, USA)

Abstract

Quote volatility is important in determining the cost of demand in a high frequency (HF) order market. This paper proposes a new model to measure quote volatility based on the point process and price-change duration. Specifically, we built a change-point intensity (CPI) model to describe the dynamics of price-change events for a given level of threshold. The instantaneous volatility of quote price can be calculated at any time according to price-change intensities. Based on this, we can quantify the cost of demanding liquidity for traders with different trading latency by using integrated variances. Furthermore, we use the autoregressive conditional intensity (ACI) model proposed by Russell (1999) as a benchmark comparison. The results suggest that our model has better performance of both in-sample fitness and out-of-sample prediction.

Suggested Citation

  • Zhicheng Li & Haipeng Xing, 2022. "High-Frequency Quote Volatility Measurement Using a Change-Point Intensity Model," Mathematics, MDPI, vol. 10(4), pages 1-24, February.
    • Handle: RePEc:gam:jmathe:v:10:y:2022:i:4:p:634-:d:752532
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    References listed on IDEAS

    as
    1. Anatoliy Swishchuk & Aiden Huffman, 2020. "General Compound Hawkes Processes in Limit Order Books," Risks, MDPI, vol. 8(1), pages 1-25, March.
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    Cited by:

    1. Li, Zhicheng & Chen, Xinyun & Xing, Haipeng, 2023. "A multifactor regime-switching model for inter-trade durations in the high-frequency limit order market," Economic Modelling, Elsevier, vol. 118(C).
    2. Greeshma Balabhadra & El Mehdi Ainasse & Pawel Polak, 2023. "High-Frequency Volatility Estimation with Fast Multiple Change Points Detection," Papers 2303.10550, arXiv.org, revised Mar 2023.

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