Dynamic Latent Factor Models for Intensity Processes

CORE Discussion Paper No. 2003/103

37 Pages Posted: 14 Apr 2005

See all articles by Luc Bauwens

Luc Bauwens

Université catholique de Louvain

Nikolaus Hautsch

University of Vienna - Department of Statistics and Operations Research; Center for Financial Studies (CFS); Vienna Graduate School of Finance (VGSF)

Date Written: February 17, 2004

Abstract

This paper introduces a new framework for the dynamic modelling of univariate and multivariate point processes. The so-called latent factor intensity (LFI) model is based on the assumption that the intensity function consists of univariate or multivariate observation driven dynamic components and a univariate dynamic latent factor. In this sense, the model corresponds to a dynamic extension of a doubly stochastic Poisson process. We illustrate alternative parameterizations of the observation driven component based on autoregressive conditional intensity (ACI) specifications, as well as Hawkes types models. Based on simulation studies, it is shown that the proposed model provides a flexible tool to capture the joint dynamics of multivariate point processes. Since the latent component has to be integrated out, the model is estimated by simulated maximum likelihood based upon efficient importance sampling techniques. Applications of univariate and bivariate LFI models to transaction data extracted from the German XETRA trading system provide evidence for an improvement of the econometric specification when observable as well as unobservable dynamic components are taken into account.

Keywords: Multivariate point process, latent factor, transaction durations, efficient importance sampling

JEL Classification: C22, C32, C41

Suggested Citation

Bauwens, Luc and Hautsch, Nikolaus, Dynamic Latent Factor Models for Intensity Processes (February 17, 2004). CORE Discussion Paper No. 2003/103. Available at SSRN: https://ssrn.com/abstract=691886 or http://dx.doi.org/10.2139/ssrn.691886

Luc Bauwens (Contact Author)

Université catholique de Louvain ( email )

CORE
34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium
32 10 474321 (Phone)
32 10 474301 (Fax)

Nikolaus Hautsch

University of Vienna - Department of Statistics and Operations Research ( email )

Oskar-Morgenstern-Platz 1
Vienna, A-1090
Austria

Center for Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

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