Modelling Regime Shifts in Continuous Intraday Electricity Markets with State-dependent Hawkes Processes

2026-10-06

AI Summary

This study addresses the inability of conventional models to capture order flow dynamics across varying liquidity regimes in highly volatile intraday electricity markets by proposing a multivariate state-dependent Hawkes process. Methodologically, it introduces a Liquidity Stress Index (LSI) to identify market states and employs piecewise dynamic parameter calibration to model order flow behavior under heterogeneous liquidity mechanisms. Results demonstrate that a three-state partition yields optimal goodness-of-fit, while removing states significantly degrades model performance. Furthermore, liquidity stress primarily amplifies trade self-excitation rather than reshaping cross-side structural dependencies. This work validates the essential value of conditional modeling in characterizing complex market microstructures.

Abstract

The growing importance of intraday trading in Europe, driven by the increasing penetration of renewable energy sources, has led to higher volatility and periods of market stress. Understanding how order flow behaves under varying liquidity conditions requires models that adapt to the state of the market. This paper proposes a multivariate state-dependent Hawkes process to model the flow of orders across different liquidity regimes in the intraday continuous electricity market. The observed market states are identified using a proposed Liquidity Stress Index (LSI), which quantifies stress using the bid-ask spread in the limit order book, order book volume, and mid-price volatility. Transitions between states induce changes in the intensity parameters, resulting in piecewise dynamics that reflect regime-specific order-flow behavior. The model is calibrated on January-March 2024 Dutch intraday continuous cross-border intraday (XBID) hourly order data from EPEX SPOT. The estimated dynamics show that order flow is strongly self-exciting and near-critical, that executed trades trigger new same-side orders while the reverse effect is negligible, and that liquidity stress mainly strengthens transaction self-excitation rather than reshaping the cross-side structure. Robustness checks over the LSI composition and the state partition show that the results are driven by the regime construction itself: alternative index compositions fit within a narrow band, three states fit better than two, and removing the states clearly degrades the fit relative to a single-regime Hawkes benchmark. The results highlight both the value of conditioning order-flow models on liquidity stress and the limits of a single-exponential specification when event frequencies are highly imbalanced.

Problem

• intraday electricity markets
• regime shifts
• order flow
• liquidity stress
• Hawkes processes

Innovation

• State-dependent Hawkes Process
• Liquidity Stress Index
• Intraday Electricity Market
• Regime Shifts
• Order Flow Dynamics