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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
UPEM - Université Paris-Est Marne-la-Vallée, ENPC - École des Ponts ParisTech, Inria de Paris
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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Soumis le : mardi 30 juin 2015 - 08:50:01
Dernière modification le : vendredi 8 juillet 2022 - 10:06:43

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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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