High frequency transaction prices exhibit two major cha racteristics: they are discrete in level and only exist at random transaction dates. In this paper, we seek to model transaction price dynamics, taking into account these two features. We specify the transaction price process as a Markov...

Until recently the liquidity of financial assets has typically been viewed as a second-order consideration. Liquidity was frequently associated with simple transaction costs that impose - temporary if any- effect on asset prices, and whose shocks could be easily diversified away. Yet the...

At the beginning of 2004, the Eurosystem implemented several modifications of its operational framework and liquidity management aiming at enhancing market efficiency. The purpose of this article is to study the effects of theses changes in the spread between the Eonia and the minimum bid rate....