Modelling Financial High Frequency Data Using Point Processes
CRC Discussion Paper No. 2007-066
30 Pages Posted: 6 Aug 2008
Date Written: November 5, 2007
In this paper, we give an overview of the state-of-the-art in the econometric literature on the modeling of so-called financial point processes. The latter are associated with the random arrival of specific financial trading events, such as transactions, quote updates, limit orders or price changes observable based on financial high-frequency data. After discussing fundamental statistical concepts of point process theory, we review duration-based and intensity-based models of financial point processes. Whereas duration-based approaches are mostly preferable for univariate time series, intensity-based models provide powerful frameworks to model multivariate point processes in continuous time. We illustrate the most important properties of the individual models and discuss major empirical applications.
Keywords: Financial point processes, dynamic duration models, dynamic intensity models
JEL Classification: C22, C32, C41
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