Modelling Order Flow in Intraday Electricity Markets with State-dependent Hawkes Processes
ORIGINAL / Modelling Regime Shifts in Continuous Intraday Electricity Markets with State-dependent Hawkes Processes
The study proposes a multivariate state-dependent Hawkes process that uses a Liquidity Stress Index to identify market states and allows state transitions to change intensity parameters. Calibrated on Dutch intraday cross-border hourly order data from January to March 2024, it finds strongly self-exciting, near-critical order flow, with liquidity stress mainly strengthening transaction self-excitation rather than reshaping cross-side structure.
01 ABSTRACT
The paper applies a state-dependent Hawkes process to order flow in continuous intraday electricity markets, using a proposed Liquidity Stress Index (LSI) to partition market states. Calibration results show strongly self-exciting, near-critical order flow, where executed trades trigger new same-side orders while the reverse effect is negligible. The authors argue that conditioning on liquidity stress is valuable, but a single-exponential specification has limitations when event frequencies are highly imbalanced.
02 KEY FINDINGS
- A multivariate state-dependent Hawkes process is proposed, where state transitions change intensity parameters via the LSI, producing piecewise dynamics.
- Estimates on Dutch XBID hourly order data from January to March 2024 show strongly self-exciting and near-critical order flow.
- Executed trades trigger new same-side orders while the reverse effect is negligible; liquidity stress mainly strengthens transaction self-excitation rather than reshaping cross-side structure.
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