Modelling systemic price cojumps with Hawkes factor models

Instabilities in the price dynamics of a large number of financial assets are a clear sign of systemic events. By investigating portfolios of highly liquid stocks, we find that there are a large number of high-frequency cojumps. We show that the dynamics of these jumps is described neither by a mult...

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Bibliographic Details
Published in:Quantitative finance 2015-07, Vol.15 (7), p.1137-1156
Main Authors: Bormetti, Giacomo, Calcagnile, Lucio Maria, Treccani, Michele, Corsi, Fulvio, Marmi, Stefano, Lillo, Fabrizio
Format: Article
Language:English
Subjects:
Assets
Cojumps
Hawkes processes
High frequency data
Mathematical models
Multivariate analysis
Stock prices
Studies
Systemic shocks
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Summary:Instabilities in the price dynamics of a large number of financial assets are a clear sign of systemic events. By investigating portfolios of highly liquid stocks, we find that there are a large number of high-frequency cojumps. We show that the dynamics of these jumps is described neither by a multivariate Poisson nor by a multivariate Hawkes model. We introduce a Hawkes one-factor model which is able to capture simultaneously the time clustering of jumps and the high synchronization of jumps across assets.
ISSN:1469-7688
1469-7696
DOI:10.1080/14697688.2014.996586