Event-Time Anchor Selection for Multi-Contract Quoting

TL;DR

This paper proposes a diagnostic framework for selecting a reference contract in multi-contract quoting by evaluating price stability through Hawkes process forecasts and limit order book analysis, aiming to reduce execution risk.

Contribution

It introduces a novel framework combining event-history and LOB signals for reference contract selection to improve execution stability in multi-contract quoting.

Findings

Event-history and LOB signals provide complementary insights.

The framework effectively identifies stable contracts in NIFTY futures.

Combining signals reduces execution risk in practice.

Abstract

When quoting across multiple contracts, the sequence of execution can be a key driver of implementation shortfall relative to the target spread~\cite{bergault2022multi}. We model the short-horizon execution risk from such quoting as variations in transaction prices between the initiation of the first leg and the completion of the position. Our quoting policy anchors the spread by designating one contract ex ante as a \emph{reference contract}. Reducing execution risk requires a predictive criterion for selecting that contract whose price is most stable over the execution interval. This paper develops a diagnostic framework for reference-contract selection that evaluates this stability by contrasting order-flow Hawkes forecasts with a Composite Liquidity Factor (CLF) of instantaneous limit order book (LOB) shape. We illustrate the framework on tick-by-tick data for a pair of NIFTY futures contracts. The results suggest that event-history and LOB-state signals offer complementary views of short-horizon execution risk for reference-contract selection.