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Quantitative Finance · Begrippenlijst

Wat is Huang–Stoll model?

Ook bekend als: Huang--Stoll model

Definition 5.6 Microstructure and Execution · Hoofdstuk 5 — Decomposing the Spread

The Huang–Stoll model (basic form) writes the change of the transaction price between trades as

Δpt=S2 Δεt+λ S2 εt−1+et,\Delta p_t=\frac S2\,\Delta\varepsilon_t+\lambda\,\frac S2\,\varepsilon_{t-1}+e_t,

where SS is the traded spread and λ\lambda the share of the half-spread by which the quotes move after a trade: adverse selection plus inventory, which the basic form cannot separate. Its extensions separate them with a model of the autocorrelation of trade signs.

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