A simple microstructure model based on the Cox-BESQ process with application to optimal execution policy
In this work we build a model to describe the evolution of an asset at high frequency. We explicit the statistical properties of the asset and relate them to their counterpart at low frequency, typically daily, that is commonly used in certain financial applications. Within this framework, we explain how to optimally liquidate a portfolio position, which takes into account the impact of a trade on the asset’s liquidity, over a certain time interval and illustrate how the model can be implemented in practice.
This overview is based on the paper entitled “A simple microstructure model based on the Cox-BESQ process with application to optimal execution policy” by José Da Fonseca and Yannick Malevergne published in the Journal of Economic Dynamics and Control ( https://doi.org/10.1016/j.jedc.2021.104137 )