Discrete-valued Levy processes and low latency financial econometrics

Shephard N, Pollard DG, Barndorff-Nielsen OE

Motivated by features of low latency data in finance we study in detail discrete-valued Levy processes as the basis of price processes for high frequency econometrics. An important case of this is a Skellam process, which is the difference of two independent Poisson processes. We propose a natural generalisation which is the difference of two negative binomial processes. We apply these models in practice to low latency data for a variety of different types of futures contracts.

Keywords:

low latency data

,

high frequency econometrics

,

Skellam distribution

,

futures markets

,

negative binomial