Paper: arXiv 2610.08169

Authors: Ayoub Jhabli, Tarek AlSkaif, Kwabena E. Bennin, Bedir Tekinerdogan, Axel Naumann, Joost M. E. Pennings

Abstract

The growing importance of intraday trading in Europe, driven by the increasing penetration of renewable energy sources, has led to higher volatility and periods of market stress. Understanding how order flow behaves under varying liquidity conditions requires models that adapt to the state of the market. This paper proposes a multivariate state-dependent Hawkes process to model the flow of orders across different liquidity regimes in the intraday continuous electricity market. The observed market states are identified using a proposed Liquidity Stress Index (LSI), which quantifies stress using the bid-ask spread in the limit order book, order book volume, and mid-price volatility. Transitions between states induce changes in the intensity parameters, resulting in piecewise dynamics that reflect regime-specific order-flow behavior. The model is calibrated on January-March 2024 Dutch intraday continuous cross-border intraday (XBID) hourly order data from EPEX SPOT. The estimated dynamics show that order flow is strongly self-exciting and near-critical, that executed trades trigger new same-side orders while the reverse effect is negligible, and that liquidity stress mainly strengthens transaction self-excitation rather than reshaping the cross-side structure. Robustness checks over the LSI composition and the state partition show that the results are driven by the regime construction itself: alternative index compositions fit within a narrow band, three states fit better than two, and removing the states clearly degrades the fit relative to a single-regime Hawkes benchmark. The results highlight both the value of conditioning order-flow models on liquidity stress and the limits of a single-exponential specification when event frequencies are highly imbalanced.

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: This paper presents a sophisticated state-dependent Hawkes process model, demonstrating strong mathematical foundations. It applies this model to real-world intraday electricity market data with robust empirical validation and extensive robustness checks. The novelty lies in integrating liquidity stress regimes into Hawkes processes for this specific market context.

Research Flowchart

  flowchart TD
    A[Research Goal: Model Order Flow in Intraday Electricity Markets Under Varying Liquidity] --> B{Key Methodology: Multivariate State-Dependent Hawkes Process};
    B --> C[Data/Inputs: Jan-Mar 2024 Dutch XBID Hourly Order Data (EPEX SPOT)];
    C --> D{Computational Process: Liquidity Stress Index (LSI) & State Identification};
    D --> E{Computational Process: Hawkes Process Calibration & Regime Transition Analysis};
    E --> F[Key Findings/Outcomes: Strong Self-Excitation, Same-Side Order Triggering, LSI Strengthens Transaction Self-Excitation, Value of Conditioning on Liquidity Stress];