Package: napiod
NAPIODNon-average price impact in order-driven marketsnapiodgives a python implementation of the measurement of price impact in order-driven markets introduced inBellani et al. (2021).
This measurement of price impact quantifies the extent to which price movements are caused by a labelled agent in the market, either by her own market orders (direct impact) or by other market participants reacting to her actions (indirect impact).
In other words,napiodmeasures theGranger causalitybetween the market orders of a labelled agent and the movements of the mid-price.
The price impact is scenario-specific and depends both on the agent's behaviour and on the market environment.
The measurement of price impact is based on a model that utilises state-dependet Hawkes processes introduced inMorariu-Patrichi and Pakkanen (2017)andMorariu-Patrichi and Pakkanen (2018), and sonapioddepends onmpoints.The modelWe consider five streams of random times:
the stream
$T^{0}_1, T^{0}_2, \dots$
of times when our labelled agent submits market orders;
the stream
$T^{1}_1, T^{1}_2, \dots$
of times when limit orders are executed on the bid side
(equivalently identified with the arrival times of sell market orders);
the stream$T^{2}_1, T^{2}_2, \dots$
of times when limit orders are executed on the ask side
(equivalently identified with arrival times of buy market orders);
the stream
$T^{3}_1, T^{3}_2, \dots$
of times when
either an ask limit order is inserted inside the spread,
or the cancellation of a bid limit order depletes the liquidity available at the first bid level;
the stream
$T^{4}_1, T^{4}_2, \dots$
of times when
either a bid limit order is inserted inside the spread,
or the cancellation of an ask limit order depletes the liquidity available at the first ask level.The five sequences of random times give rise to a five-dimensional counting process
$N=(N_0, N_1, N_2, N_3, N_4)$
with the following interpretation of its components:$N_0(t)$ denotes the number of market orders that our labelled agent has submitted before or at time $t$;$N_1(t)$  denotes the number of seller-initiated trades that happened before or at time $t$
(identified with the number of market orders arrived on the bid side of the order book by time $t$);$N_2(t)$
denotes the number of buyer-initiated trades that happened before or at time $t$
(identified with the number of market orders arrived on the ask side of the order book by time $t$);$N_3(t)$ denotes the number of decreases in the mid-price
caused by a limit order insertion or cancellation that happened before or at time $t$;$N_4(t)$ denotes the number of increases in the mid-price
caused by a limit order insertion or cancellation that happened before or at time $t$The counting process $N$ is paired with the state variable $X = (X_1, X_2)$.
At time $t$, the state variable $X(t)$ summarises the configuration
of the limit order book at time $t$,
by recording a proxy for the volume imbalance,
and the variation of the mid-price compared to time $t-$.
More precisely,
$X_1(t) = -1$ if the volumes imbalance at time $t$ is -33% or more negative;
$X_1(t) = 0$ if the volumes imbalance at time $t$ is between -33%  and +33%;
$X_1(t) = +1$ if the volumes imbalance at time $t$ is +33% or more positive;
$X_2(t) = -1$ if the latest event in the order book has decreased the mid-price;
$X_2(t) = 0$ if the latest event in the order book has left the mid-price unchanged;
$X_2(t) = +1$ if the latest event in the order book has increased the mid-price.The pair $(N, X)$ is modelled as a state-dependent Hawkes process.Each agent's market order $T^{0}_j$ has two effects.
On the one hand, at every $T^{0}_j$ the state variable $X$ is updated, and the mid-price decreases if $X(T^{0}_j) = -1$ or it increases if $X(T^{0}_j) = +1$.
On the other hand, every $T^{0}_j$ alters the intensity of occurrence of the random times $T^{1}$, $T^2$, $T^3$, $T^4$,
and these in turn will produce updates of the state process $X$.
A quantification of the first effect produces our measurement of direct price impact,
and a quantification of the second effect produces our measurement of indirect price impact.
Direct price impact is non-negative and non-decreasing, and the larger it is the more unfavourably the mid-price moves against the agent.
Indirect impact, instead, can be positive or negative:
it is positive when market participants react to the agent and move the mid-price in a way unfavourable to the agent;
it is negative when market participants react to the agent and move the mid-price in a way favourable to the agent.For more detail into the model and the measurement of price impact, please consultBellani et al. (2021).Installationpip install napiodBuild from sourceBuild the wheel usingsetuptools.pip install -q build
python -m buildInstall in development modeIf you are contributing tonapiod, you might want to install it in development mode.
Seedevelopment-modepip install --upgrade --force-reinstall --editable <path-to-napiod-root>