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Extension and calibration of a Hawkes-based optimal execution model

Aurélien Alfonsi 1, 2 Pierre Blanc 1, 2
2 MATHRISK - Mathematical Risk Handling
Inria de Paris, ENPC - École des Ponts ParisTech, UPEM - Université Paris-Est Marne-la-Vallée
Abstract : We provide some theoretical extensions and a calibration protocol for our former dynamic optimal execution model. The Hawkes parameters and the propagator are estimated independently on financial data from stocks of the CAC40. Interestingly, the propagator exhibits a smoothly decaying form with one or two dominant time scales, but only so after a few seconds that the market needs to adjust after a large trade. Motivated by our estimation results, we derive the optimal execution strategy for a multi-exponential Hawkes kernel and backtest it on the data for round trips. We find that the strategy is profitable on average when trading at the midprice, which is in accordance with violated martingale conditions. However, in most cases, these profits vanish when we take bid-ask costs into account.
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https://hal-enpc.archives-ouvertes.fr/hal-01169686
Contributeur : Aurélien Alfonsi <>
Soumis le : mardi 30 juin 2015 - 08:50:01
Dernière modification le : mercredi 26 février 2020 - 19:06:17

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Aurélien Alfonsi, Pierre Blanc. Extension and calibration of a Hawkes-based optimal execution model. Market microstructure and liquidity, World scientific publishing company, 2016, ⟨10.1142/S2382626616500052⟩. ⟨hal-01169686⟩

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