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A simple microstructure model based on the Cox-BESQ process with application to optimal execution policy

Author

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  • José da Fonseca

    (AUT - Auckland University of Technology, UP1 - Université Paris 1 Panthéon-Sorbonne, PRISM Sorbonne - Pôle de recherche interdisciplinaire en sciences du management - UP1 - Université Paris 1 Panthéon-Sorbonne)

  • Yannick Malevergne

    (UP1 - Université Paris 1 Panthéon-Sorbonne, PRISM Sorbonne - Pôle de recherche interdisciplinaire en sciences du management - UP1 - Université Paris 1 Panthéon-Sorbonne)

Abstract

We develop a microstructure model whose order flow is driven by a Cox-BESQ process. We derive important analytical properties of the Cox-BESQ process in order to explicit the stock price dynamics at different time scales, provide different parameter estimators and solve the optimal execution problem. We implement the model using a large data set of stock index and bond futures. Our results show that the Cox-BESQ process provides an alternative framework to the Hawkes process to build a microstructure model that is very flexible and has an explicit solution.

Suggested Citation

  • José da Fonseca & Yannick Malevergne, 2021. "A simple microstructure model based on the Cox-BESQ process with application to optimal execution policy," Post-Print halshs-03590382, HAL.
    • Handle: RePEc:hal:journl:halshs-03590382
    DOI: 10.1016/j.jedc.2021.104137
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03590382
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    1. Kyungsub Lee, 2023. "Multi-kernel property in high-frequency price dynamics under Hawkes model," Papers 2302.11822, arXiv.org.
    2. Kyungsub Lee, 2022. "Application of Hawkes volatility in the observation of filtered high-frequency price process in tick structures," Papers 2207.05939, arXiv.org.

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    More about this item

    Keywords

    Microstructure model; Stochastic intensity model; Cox-BESQ process; Optimal execution;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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