Autoregressive conditional duration - Alchetron, the free social encyclopedia

In financial econometrics, an autoregressive conditional duration (ACD, Engle and Russell (1998)) model considers irregularly spaced and autocorrelated intertrade durations. ACD is analogous to GARCH. Indeed, in a continuous double auction (a common trading mechanism in many financial markets) waiting times between two consecutive trades vary at random.

Definition

Specifically, let τ t denote the duration (the waiting time between consecutive trades) and assume that τ t = θ t z t , where z t are independent and identically distributed random variables, positive and with E ⁡ ( z t ) = 1 and where the series θ t is given by

θ t = α 0 + α 1 τ t − 1 + ⋯ + α q τ t − q + β 1 θ t − 1 + ⋯ + β p θ t − p = α 0 + ∑ i = 1 q α i τ t − i + ∑ i = 1 p β i θ t − i

and where α 0 > 0 , α i ≥ 0 , β i ≥ 0 , i > 0 .

References

Autoregressive conditional duration Wikipedia

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