IDEAS home Printed from https://ideas.repec.org/b/spr/mathfi/v19y2025i1d10.1007_s11579-024-00379-7.html
   My bibliography  Save this book

A fractional Hawkes process for illiquidity modeling

Author

Listed:
  • Jean-Loup Dupret

    (LIDAM-ISBA, Université Catholique de Louvain)

  • Donatien Hainaut

    (LIDAM-ISBA, Université Catholique de Louvain)

Abstract

The Amihud illiquidity measure has proven to be very popular in the economic and financial literature for measuring the illiquidity process of stocks and indices. None of the existing discrete-time illiquidity models in the literature are however adapted for reproducing peaks of illiquidity with long memory and for the management of the liquidity risk associated with these securities. This paper therefore proposes a new continuous-time paradigm for modeling illiquidity via a novel fractional Hawkes process in which the intensity process is ruled by a modified Mittag-Leffler excitation function. By considering a mean-reverting jump-diffusion model for the (log-)Amihud measure where jumps follow this modified fractional Hawkes process, we then manage to effectively reproduce the observed peaks of illiquidity in financial markets while introducing long-term effects and tractability in the model. We can therefore use this model to directly perform risk management on the Amihud illiquidity measure. This paper hence provides new tools for a better management of the illiquidity risk in financial markets.

Suggested Citation

  • Jean-Loup Dupret & Donatien Hainaut, 2025. "A fractional Hawkes process for illiquidity modeling," Mathematics and Financial Economics, Springer, volume 19, number 6, December.
  • Handle: RePEc:spr:mathfi:v:19:y:2025:i:1:d:10.1007_s11579-024-00379-7
    DOI: 10.1007/s11579-024-00379-7
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11579-024-00379-7
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    File URL: https://libkey.io/10.1007/s11579-024-00379-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:mathfi:v:19:y:2025:i:1:d:10.1007_s11579-024-00379-7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.