Paper: arXiv 2504.10282

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.

Complexity vs Empirical Score

  • Math Complexity: 8.5/10
  • Empirical Rigor: 7.0/10
  • Quadrant: Holy Grail — high math complexity, high empirical rigor

Why this score: 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.

Research Flowchart

  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"]