IDEAS home Printed from https://ideas.repec.org/p/aiz/louvar/2024041.html

A fractional Hawkes process for illiquidity modeling

Author

Listed:
  • Dupret, Jean-Loup

    (Université catholique de Louvain, LIDAM/ISBA, Belgium)

  • Hainaut, Donatien

    (Université catholique de Louvain, LIDAM/ISBA, Belgium)

Abstract

The Amihud illiquidity measure has proven to be very popular in the economic and financial literature for measuring the illiquidity process of stocks and indices. None of the existing discrete-time illiquidity models in the literature are however adapted for reproducing peaks of illiquidity with long memory and for the management of the liquidity risk associated with these securities. This paper therefore proposes a new continuous-time paradigm for modeling illiquidity via a novel fractional Hawkes process in which the intensity process is ruled by a modified Mittag-Leffler excitation function. By considering a mean-reverting jump-diffusion model for the (log-)Amihud measure where jumps follow this modified fractional Hawkes process, we then manage to effectively reproduce the observed peaks of illiquidity in financial markets while introducing long-term effects and tractability in the model. We can therefore use this model to directly perform risk management on the Amihud illiquidity measure. This paper hence provides new tools for a better management of the illiquidity risk in financial markets.

Suggested Citation

  • Dupret, Jean-Loup & Hainaut, Donatien, 2024. "A fractional Hawkes process for illiquidity modeling," LIDAM Reprints ISBA 2024041, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    • Handle: RePEc:aiz:louvar:2024041
    DOI: https://doi.org/10.1007/s11579-024-00379-7
    Note: In: Mathematics and Financial Economics, 2025, vol. 19(1), p. 143-181
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a
    for a similarly titled item that would be available.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aiz:louvar:2024041. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Nadja Peiffer (email available below). General contact details of provider: https://edirc.repec.org/data/isuclbe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.