scholarly journals Modeling Intraday Markets under the New Advances of the Cross-Border Intraday Project (XBID): Evidence from the German Intraday Market

Energies ◽  
2019 ◽  
Vol 12 (22) ◽  
pp. 4339 ◽  
Author(s):  
Christopher Kath
Keyword(s):  
Weighted Average ◽  
Market Liquidity ◽  
Order Book ◽  
Market Participants ◽  
Cross Border ◽  
Price Series ◽  
Power Exchange ◽  
Initial Hypothesis ◽  
Energy Exchanges ◽  
Intraday Market

The intraday cross-border project (XBID) allows intraday market participants to trade based on a shared order book independent of countries or local energy exchanges. This theoretically leads to an efficient allocation of cross-border capacities and ensures maximum market liquidity across European intraday markets. If this postulation holds, the technical implementation of XBID might mark a regime switch in any intraday price series. We present a regression-based model for intraday markets with a particular focus on the German European Power Exchange (EPEX) intraday market and evaluate if the introduction of XBID influence prices, volume or volatility. We analyze partial volume-weighted average prices and standard deviations as well as cross-border volumes at different trading times. We are able to falsify our initial hypothesis assuming a measurable influence of changes caused by XBID. Thus, this paper contributes to the ongoing discussion on appropriate modeling of intraday markets and demonstrates that XBID does not necessarily need to be included in any model.

scholarly journals Electricity Market Liquidity and Price Spikes: Evidence from Hungary

2021 ◽  
Author(s):  
Mátyás Bajai ◽  
Attila A. Víg ◽  
Olivér Hortay
Keyword(s):  
Electricity Market ◽  
Explanatory Variable ◽  
Market Liquidity ◽  
Control Variables ◽  
Cross Border ◽  
Bid Ask Spread ◽  
Power Exchange ◽  
The Difference ◽  
The Empirical Analysis ◽  
Price Spikes

This article examines how electricity market liquidity, renewable production and cross-border activity together in combination explain price spikes in the Hungarian Power Exchange day-ahead auctions. In the applied logit model, the dependent variable representing the price spike is binary, and the key explanatory variable is a modified bid-ask spread depicting liquidity. Weather-dependent renewable production and the difference between exports and imports appear as control variables in the model. The empirical analysis was based on data from 2017 and 2018. The results show that the control variables have no effect on the bid-ask spread and that the model explains 96 per cent of the spikes well, with an AUC-ROC of 0.75 and a Gini coefficient of 0.5. Based on the results, it may be worthwhile for traders to incorporate their data from sales and purchase curves into their forecasts, as this will improve their chances of successfully predicting extreme prices.

scholarly journals A Speculative Trading Model for the Electricity Market: Based on Japan Electric Power Exchange

Energies ◽  
2019 ◽  
Vol 12 (15) ◽  
pp. 2946
Author(s):  
Jun Maekawa ◽  
Koji Shimada
Keyword(s):  
Renewable Energy ◽  
Electric Power ◽  
Electricity Market ◽  
Renewable Energy Sources ◽  
Market Liquidity ◽  
Market Model ◽  
Forward Markets ◽  
Power Exchange ◽  
Trading Model ◽  
Speculative Trading

Renewable energy sources produce less environmental impact and have little marginal cost. Thus, because of these characteristics, it is desirable to disseminate it for the purpose of economic efficiency. Because of the uncertainty in the supply of renewable energy and the special feature of electricity as a good, such as merit order curve, introducing forward markets is an essential factor in a liberalized market. In European countries, which have already established several mechanisms for managing liquidity including markets with several timelines, the market liquidity invites the investor to perform some speculative action. We present a simple electric power market model to analyze the speculative actions of electricity suppliers and the price effect of such actions. Moreover, we found that the speculative action improves the inelasticity of the demand in electricity market.

Order-Book Modeling and Market Making Strategies

2018 ◽  
Vol 04 (01n02) ◽  
pp. 1950003
Author(s):  
Xiaofei Lu ◽  
Frédéric Abergel
Keyword(s):  
Optimal Strategies ◽  
Limit Order Book ◽  
Point Of View ◽  
Algorithmic Trading ◽  
Practical Implementation ◽  
Order Book ◽  
Theoretical Point ◽  
Market Making ◽  
Market Participants ◽  
Real Market

Market making is one of the most important aspects of algorithmic trading, and it has been studied quite extensively from a theoretical point of view. The practical implementation of so-called “optimal strategies” however suffers from the failure of most order-book models to faithfully reproduce the behavior of real market participants. This paper is two-fold. First, some important statistical properties of order-driven markets are identified, advocating against the use of purely Markovian order-book models. Then, market making strategies are designed and their performances are compared, based on simulation as well as backtesting. We find that incorporating some simple non-Markovian features in the limit order book greatly improves the performances of market making strategies in a realistic context.

Default of Systemically Important Financial Intermediaries: Short-term Stability versus Incentive Compatibility?

2013 ◽  
Vol 14 (1) ◽  
pp. 15-30 ◽  
Author(s):  
Andreas Dombret ◽  
André Ebner
Keyword(s):  
Financial Institutions ◽  
Financial Stability ◽  
Financial Integration ◽  
Incentive Compatibility ◽  
Financial Intermediaries ◽  
Entry And Exit ◽  
Short Term ◽  
Market Participants ◽  
Cross Border ◽  
Crucial Feature

Abstract Financial integration and globalization have acted as a major stimulus in the development of large, internationally operating banks, which not only provide cross-border services but also have a local presence. While these banks are themselves drivers of economic integration, they can pose serious threats to financial stability. Their size, interconnectedness and importance as providers of specific services mean that financial institutions can be too-systemic-to-fail (TSTF). Since the entry and exit of market participants is a crucial feature of well-functioning markets, the absence of any credible possibility of failure leads to serious distortions. This analysis gives an overview of the TSTF problem and discusses the challenges to be faced in establishing credible resolution regimes.

scholarly journals Optimal inventory management and order book modeling

2019 ◽  
Vol 65 ◽  
pp. 145-181 ◽  
Author(s):  
Nicolas Baradel ◽  
Bruno Bouchard ◽  
David Evangelista ◽  
Othmane Mounjid
Keyword(s):  
Inventory Management ◽  
High Frequency ◽  
Limit Order Book ◽  
Order Book ◽  
Value Functions ◽  
Limit Order ◽  
Terminal Wealth ◽  
Market Makers ◽  
Market Participants ◽  
The One

We model the behavior of three agent classes acting dynamically in a limit order book of a financial asset. Namely, we consider market makers (MM), high-frequency trading (HFT) firms, and institutional brokers (IB). Given a prior dynamic of the order book, similar to the one considered in the Queue-Reactive models [12, 18, 19], the MM and the HFT define their trading strategy by optimizing the expected utility of terminal wealth, while the IB has a prescheduled task to sell or buy many shares of the considered asset. We derive the variational partial differential equations that characterize the value functions of the MM and HFT and explain how almost optimal control can be deduced from them. We then provide a first illustration of the interactions that can take place between these different market participants by simulating the dynamic of an order book in which each of them plays his own (optimal) strategy.

scholarly journals Trade informativeness and liquidity in Bitcoin markets

PLoS ONE ◽  
2021 ◽  
Vol 16 (8) ◽  
pp. e0255515
Author(s):  
J. Christopher Westland
Keyword(s):  
Trading Volume ◽  
Limit Order Book ◽  
Small Sample ◽  
Market Liquidity ◽  
Order Book ◽  
Information Asymmetries ◽  
Limit Order ◽  
Limit Orders ◽  
Market Orders ◽  
Book Markets

Liquid markets are driven by information asymmetries and the injection of new information in trades into market prices. Where market matching uses an electronic limit order book (LOB), limit orders traders may make suboptimal price and trade decisions based on new but incomplete information arriving with market orders. This paper measures the information asymmetries in Bitcoin trading limit order books on the Kraken platform, and compares these to prior studies on equities LOB markets. In limit order book markets, traders have the option of waiting to supply liquidity through limit orders, or immediately demanding liquidity through market orders or aggressively priced limit orders. In my multivariate analysis, I control for volatility, trading volume, trading intensity and order imbalance to isolate the effect of trade informativeness on book liquidity. The current research offers the first empirical study of Glosten (1994) to yield a positive, and credibly large transaction cost parameter. Trade and LOB datasets in this study were several orders of magnitude larger than any of the prior studies. Given the poor small sample properties of GMM, it is likely that this substantial increase in size of datasets is essential for validating the model. The research strongly supports Glosten’s seminal theoretical model of limit order book markets, showing that these are valid models of Bitcoin markets. This research empirically tested and confirmed trade informativeness as a prime driver of market liquidity in the Bitcoin market.

scholarly journals The Relation between Intraday Limit Order Book Depth and Spread

2021 ◽  
Vol 9 (4) ◽  
pp. 60
Author(s):  
Alexandre Aidov ◽  
Olesya Lobanova
Keyword(s):  
Generalized Method Of Moments ◽  
Limit Order Book ◽  
Order Book ◽  
Inverse Relation ◽  
Limit Order ◽  
Market Participants ◽  
Market Depth ◽  
Bid Ask Spread ◽  
Explanatory Factors ◽  
Trading Decisions

Prior studies that examine the relation between market depth and bid–ask spread are often limited to the first level of the limit order book. However, the full limit order book provides important information beyond the first level about the depth and spread, which affects the trading decisions of market participants. This paper examines the intraday behavior of depth and spread in the five-deep limit order book and the relation between depth and spread in a futures market setting. A dummy-variables regression framework is employed and is estimated using the generalized method of moments (GMM). Results indicate an inverse U-shaped pattern for depth and an increasing pattern for spread. After controlling for known explanatory factors, an inverse relation between the limit order book depth and spread is documented. The inverse relation holds for depth and spread at individual levels in the limit order book as well. Results indicate that market participants actively manage both the price (spread) and quantity (depth) dimensions of liquidity along the five-deep limit order book.

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