Probability of Informed No-Tradings: A Copula-Based PIN Model with Zero-Inflated Poisson Distributions
Chu-Lan Michael Kao,
Emily Lin,
Shan-Chi Wu
Abstract:Classical probability of informed trading (PIN) models assume that, given the information scenario, the number of buy and sell order flows are independently Poisson distributed, which imposes an assumption on the probability of no-trades. However, empirical data shows that the implied probabilities of no-trades do not match the aforementioned Poisson and independent assumptions. Therefore, we propose a new PIN model that better fits the data by using zero-inflated Poisson distributions and copula functions, wh… Show more
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