Optimal Execution in Intraday Energy Markets under Hawkes Processes with Transient Impact

ArXiv ID: 2504.10282 “View on arXiv”

Authors: Unknown

Abstract

This paper investigates optimal execution strategies in intraday energy markets through a mutually exciting Hawkes process model. Calibrated to data from the German intraday electricity market, the model effectively captures key empirical features, including intra-session volatility, distinct intraday market activity patterns, and the Samuelson effect as gate closure approaches. By integrating a transient price impact model with a bivariate Hawkes process to model the market order flow, we derive an optimal trading trajectory for energy companies managing large volumes, accounting for the specific trading patterns in these markets. A back-testing analysis compares the proposed strategy against standard benchmarks such as Time-Weighted Average Price (TWAP) and Volume-Weighted Average Price (VWAP), demonstrating substantial cost reductions across various hourly trading products in intraday energy markets.

Keywords: mutually exciting Hawkes process, optimal execution, transient price impact model, Time-Weighted Average Price (TWAP), Volume-Weighted Average Price (VWAP), Energy (Electricity)

Complexity vs Empirical Score

  • Math Complexity: 8.5/10
  • Empirical Rigor: 7.0/10
  • Quadrant: Holy Grail
  • Why: The paper employs advanced mathematics including bivariate Hawkes processes, transient impact models, and spline-based baseline intensity estimation, while the back-testing analysis against standard benchmarks and calibration to real German intraday electricity market data provides substantial empirical validation.
  flowchart TD
    A["Research Goal<br>Optimal Execution in Intraday Energy Markets"] --> B["Methodology<br>Hawkes Process with Transient Impact"]
    B --> C["Data Inputs<br>German Intraday Electricity Market"]
    C --> D["Computational Process<br>Calibration & Back-Testing"]
    D --> E["Comparison<br>TWAP & VWAP Benchmarks"]
    E --> F["Key Findings<br>Substantial Cost Reductions"]