Marked Hawkes process modeling of price dynamics and volatility estimation

A simple Hawkes model have been developed for the price tick structure dynamics incorporating market microstructure noise and trade clustering. In this paper, the model is extended with random mark to deal with more realistic price tick structures of equities. We examine the impact of jump in price...

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Bibliographic Details
Published in:Journal of empirical finance 2017-01, Vol.40, p.174-200
Main Authors: Lee, Kyungsub, Seo, Byoung Ki
Format: Article
Language:English
Subjects:
Impact of mark
Marked Hawkes process
Tick price dynamics
Ultra-high-frequency data
Volatility
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Summary:A simple Hawkes model have been developed for the price tick structure dynamics incorporating market microstructure noise and trade clustering. In this paper, the model is extended with random mark to deal with more realistic price tick structures of equities. We examine the impact of jump in price dynamics to the future movements and dependency between the jump sizes and ground intensities. We also derive the volatility formula based on stochastic and statistical methods and compare with realized volatility in simulation and empirical studies. The marked Hawkes model is useful to estimate the intraday volatility similarly in the case of simple Hawkes model. •We develop a marked Hawkes model to describe jumps and intensities in tick structure.•We examine the dependence between the jumps of tick structure and ground intensities.•Future intensities increase by the impact of the marks.•The volatility under the Hawkes model has similar trend with realized volatility.•There are biases in volatility when the underlying is unsymmetric or inhomogeneous.
ISSN:0927-5398
1879-1727
DOI:10.1016/j.jempfin.2016.08.004