Paper: arXiv 2610.23619

Authors: Ayoub Jhabli, Tarek Alskaif, Kwabena E. Bennin, Bedir Tekinerdogan, Joost M. E. Pennings

Abstract

As renewable energy integration accelerates, intraday continuous (IDC) electricity markets have become essential for short-term balancing. However, the simultaneous trading of overlapping contracts with varying granularities creates complex, hidden liquidity dependencies that are critical to market stability but remain poorly understood. This paper proposes a multivariate State-Dependent Hawkes Process (SDHP) to model cross-product liquidity dynamics between Quarter-Hourly and Hourly IDC contracts. To determine how cross-product effects vary under different market conditions, we classify the trading sessions into two distinct regimes: ‘Normal’ and ‘Stressed’, based on a composite metric of the bid-ask spread, mid-price volatility and queue imbalance. The model is calibrated on the first month of each quarter of 2024 using level 3 limit order book (LOB) data from the Dutch EPEX SPOT IDC market. We find that order flow is overwhelmingly self-driven, with roughly 95% of orders arriving in reaction to earlier orders in both regimes. Cross-excitation runs mainly from the Quarter-Hourly to the Hourly contract, but this leadership weakens under stress: the ratio of cumulative cross-excitation falls from 2.8 to 1.5, so the two contracts influence each other almost equally. Stress also makes the Quarter-Hourly to Hourly channel much faster, cutting its mean lag from 6.05 to 0.93 seconds. The strong seasonal variation found in calm periods largely disappears under stress, where all four months converge to the same structure.

Complexity vs Empirical Score

  • Math Complexity: 7.5/10
  • Empirical Rigor: 8.0/10
  • Quadrant: Holy Grail — high math complexity, high empirical rigor

Why this score: The paper employs advanced multivariate State-Dependent Hawkes Processes and calibrates them on Level 3 LOB data, demonstrating strong empirical rigor. Its novelty lies in applying these models to cross-product spillovers in electricity markets under varying stress regimes. The overall quality is high, combining sophisticated modeling with robust empirical analysis.

Research Flowchart

  flowchart TD
    A[Research Goal: Model Cross-product Liquidity in IDC Markets] --> B{Methodology: Multivariate State-Dependent Hawkes Process (SDHP)};
    B --> C[Data: EPEX SPOT IDC LOB (Q1 2024, Dutch Market)];
    C --> D{Computational Process: Regime Classification (Normal/Stressed) & Model Calibration};
    D --> E[Outcome 1: Order Flow Overwhelmingly Self-Driven (~95%)];
    D --> F[Outcome 2: Cross-excitation: QH -> H (Normal: 2.8x, Stressed: 1.5x)];
    D --> G[Outcome 3: QH -> H Channel Faster Under Stress (Mean Lag: 6.05s -> 0.93s)];
    D --> H[Outcome 4: Seasonal Variation Disappears Under Stress];