General Compound Hawkes Processes in Limit Order Books
27 Pages Posted: 15 Nov 2018
Date Written: November 6, 2018
In this paper, we study various new Hawkes processes. Specifically, we construct general compound Hawkes processes and investigate their properties in limit order books. With regards to these general compound Hawkes processes, we prove a Law of Large Numbers (LLN) and a Functional Central Limit Theorems (FCLT) for several specific variations. We apply several of these FCLTs to limit order books to study the link between price volatility and order flow, where the volatility in mid-price changes is expressed in terms of parameters describing the arrival rates and mid-price process.
Keywords: hawkes processes, general compound hawkes processes, limit order books, functional central limit theorems, LOBSTER data
JEL Classification: C02
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