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High-Frequency Market Manipulation Detection with a Markov-modulated Hawkes process

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  • Timoth'ee Fabre
  • Ioane Muni Toke

Abstract

This work focuses on a self-exciting point process defined by a Hawkes-like intensity and a switching mechanism based on a hidden Markov chain. Previous works in such a setting assume constant intensities between consecutive events. We extend the model to general Hawkes excitation kernels that are piecewise constant between events. We develop an expectation-maximization algorithm for the statistical inference of the Hawkes intensities parameters as well as the state transition probabilities. The numerical convergence of the estimators is extensively tested on simulated data. Using high-frequency cryptocurrency data on a top centralized exchange, we apply the model to the detection of anomalous bursts of trades. We benchmark the goodness-of-fit of the model with the Markov-modulated Poisson process and demonstrate the relevance of the model in detecting suspicious activities.

Suggested Citation

  • Timoth'ee Fabre & Ioane Muni Toke, 2025. "High-Frequency Market Manipulation Detection with a Markov-modulated Hawkes process," Papers 2502.04027, arXiv.org.
    • Handle: RePEc:arx:papers:2502.04027
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    References listed on IDEAS

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    1. Jean-Philippe Bouchaud & Yuval Gefen & Marc Potters & Matthieu Wyart, 2003. "Fluctuations and response in financial markets: the subtle nature of `random' price changes," Papers cond-mat/0307332, arXiv.org, revised Aug 2003.
    2. Emmanouil Sfendourakis & Ioane Muni Toke, 2023. "LOB modeling using Hawkes processes with a state-dependent factor," Post-Print hal-03417460, HAL.
    3. Xiaofei Lu & Frédéric Abergel, 2018. "High-dimensional Hawkes processes for limit order books: modelling, empirical analysis and numerical calibration," Quantitative Finance, Taylor & Francis Journals, vol. 18(2), pages 249-264, February.
    4. Meier-Hellstern, K. S., 1987. "A fitting algorithm for Markov-modulated poisson processes having two arrival rates," European Journal of Operational Research, Elsevier, vol. 29(3), pages 370-377, June.
    5. Timoth'ee Fabre & Ioane Muni Toke, 2024. "Neural Hawkes: Non-Parametric Estimation in High Dimension and Causality Analysis in Cryptocurrency Markets," Papers 2401.09361, arXiv.org, revised Nov 2024.
    6. Philippe Bergault & Louis Bertucci & David Bouba & Olivier Gu'eant & Julien Guilbert, 2024. "Price-Aware Automated Market Makers: Models Beyond Brownian Prices and Static Liquidity," Papers 2405.03496, arXiv.org, revised May 2024.
    7. Ioane Muni Toke & Nakahiro Yoshida, 2017. "Modelling intensities of order flows in a limit order book," Quantitative Finance, Taylor & Francis Journals, vol. 17(5), pages 683-701, May.
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    11. Ioane Muni Toke & Nakahiro Yoshida, 2020. "Analyzing order flows in limit order books with ratios of Cox-type intensities," Quantitative Finance, Taylor & Francis Journals, vol. 20(1), pages 81-98, January.
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    13. Philippe Bergault & Louis Bertucci & David Bouba & Olivier Guéant & Julien Guilbert, 2024. "Price-Aware Automated Market Makers: Models Beyond Brownian Prices and Static Liquidity," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-04577060, HAL.
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