Title: Modelling the limit order book using marked Hawkes self-exciting point processes.
Authors: Kylie-Anne Richards - University of New South Wales (Australia) [presenting]
Abstract: Increased activity and temporal clustering in the limit order book (LOB) can be characterized by an increase in intensity of events. Understanding and forecasting fluctuations in the intensity is informative to high frequency financial applications. The Hawkes self-exciting point process can be used to successfully model the dynamics of the intensity function by allowing for irregularly spaced time sequences, a multivariate framework, multiple dependent marks, and the ability to capture the impact of marks on intensity. A critical first step to successfully apply these models to the LOB is the selection of marks that impact the intensity function, however the literature provides little guidance. The score test is developed to test the null hypothesis that the marks do not impact the intensity of the point process. Various boost functions can be accommodated within the general framework. To demonstrate the finite sample size and power properties of the proposed test statistic, simulation results are assessed under various combinations of decay function and boost functions. Application is also made to several real event series obtained from limit order book data.