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The Third Workshop on
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On the estimation of market liquidity and volatility
Jan-Olof Johansson
Abstract
Market liquidity can be defined as the probability that the next trade
of an asset is executed at a price equal to the last one. It can be
modeled by the bid-ask spread and the market depth. Different models of
these two properties exist and we refer in this talk to a parametric
model with a parameter \lambda for the market depth and \gamma for the
width of the bid-ask spread. We use intraday data of Microsoft and Intel
stock prices and study the parameters over time and relate their
appearance to the volatility. The time series of the parameters can
conveniently be modeled by the Ornstein-Uhlenbeck process and used for
monitoring purpose.