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An Inflated Multivariate Integer Count Hurdle Model: An Application to Bid and Ask Quote Dynamics

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Author Info
Katarzyna Bien () (University of Konstanz)
Ingmar Nolte () (University of Konstanz)
Winfried Pohlmeier () (University of Konstanz)

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Abstract

In this paper we develop a model for the conditional inflated multivariate density of integer count variables with domain Zn. Our modelling framework is based on a copula approach and can be used for a broad set of applications where the primary characteristics of the data are: (i) discrete domain, (ii) the tendency to cluster at certain outcome values and (iii) contemporaneous dependence. These kind of properties can be found for high or ultra-high frequent data describing the trading process on financial markets. We present a straightforward method of sampling from such an inflated multivariate density through the application of an Independence Metropolis-Hastings sampling algorithm. We demonstrate the power of our approach by modelling the conditional bivari- ate density of bid and ask quote changes in a high frequency setup. We show how to derive the implied conditional discrete density of the bid-ask spread, taking quote clusterings (at multiples of 5 ticks) into account.

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Publisher Info
Paper provided by Center of Finance and Econometrics, University of Konstanz in its series CoFE Discussion Paper with number 07-04.

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Length: 26 pages
Date of creation: 28 Mar 2007
Date of revision:
Handle: RePEc:knz:cofedp:0704

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For technical questions regarding this item, or to correct its listing, contact: (Ingmar Nolte).

Related research
Keywords: Multivariate Discrete Distributions; Conditional Inflation; Copula Functions; Truncations; Metropolized-Independence Sampler;

Find related papers by JEL classification:
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
F30 - International Economics - - International Finance - - - General
C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Partha Deb & Pravin K. Trivedi & David M. Zimmer, 2009. "Dynamic Cost-offsets of Prescription Drug Expenditures: Panel Data Analysis Using a Copula-based Hurdle Model," NBER Working Papers 15191, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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