Optimal Execution in Intraday Energy Markets under Hawkes Processes with Transient Impact

Abstract

This paper investigates optimal execution strategies in intraday energy markets through a mutually exciting Hawkes process model. Calibrated to data from the German intraday electricity market, the model effectively captures key empirical features, including intra-session volatility, distinct intraday market activity patterns, and the Samuelson effect as gate closure approaches. By integrating a transient price impact model with a bivariate Hawkes process to model the market order flow, we derive an optimal trading trajectory for energy companies managing large volumes, accounting for the specific trading patterns in these markets. A back-testing analysis compares the proposed strategy against standard benchmarks such as Time-Weighted Average Price (TWAP) and Volume-Weighted Average Price (VWAP), demonstrating substantial cost reductions across various hourly trading products in intraday energy markets.