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High-dimensional Hawkes processes for limit order books: modelling, empirical analysis and numerical calibration

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  • Xiaofei Lu
  • Frédéric Abergel

Abstract

High-dimensional Hawkes processes with exponential kernels are used to describe limit order books in order-driven financial markets. The dependencies between orders of various types are carefully studied and modelled, based on a thorough empirical analysis. The observation of inhibition effects is particularly interesting, and leads us to the use of non-linear Hawkes processes. Specific attention is devoted to the calibration problem, in order to account for the high dimensionality of the problem and the very poor convexity properties of the MLE. Our analyses show a good agreement between the statistical properties of order book data and those of the model.

Suggested Citation

  • Xiaofei Lu & Frédéric Abergel, 2018. "High-dimensional Hawkes processes for limit order books: modelling, empirical analysis and numerical calibration," Quantitative Finance, Taylor & Francis Journals, vol. 18(2), pages 249-264, February.
    • Handle: RePEc:taf:quantf:v:18:y:2018:i:2:p:249-264
    DOI: 10.1080/14697688.2017.1403142
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