Related papers: Modeling the coupled return-spread high frequency …
This article considers a model for alternative processes for securities prices and compares this model with actual return data of several securities. The distributions of returns that appear in the model can be Gaussian as well as…
In this paper we propose a new stochastic model based on a generalization of semi-Markov chains to study the high frequency price dynamics of traded stocks. We assume that the financial returns are described by a weighted indexed…
In this paper we propose a bivariate generalization of a weighted indexed semi-Markov chains to study the high frequency price dynamics of traded stocks. We assume that financial returns are described by a weighted indexed semi-Markov chain…
We introduce a new model for describing the fluctuations of a tick-by-tick single asset price. Our model is based on Markov renewal processes. We consider a point process associated to the timestamps of the price jumps, and marks associated…
Stock price change in financial market occurs through transactions in analogy with diffusion in stochastic physical systems. The analysis of price changes in real markets shows that long-range correlations of price fluctuations largely…
This paper builds a model of high-frequency equity returns by separately modeling the dynamics of trade-time returns and trade arrivals. Our main contributions are threefold. First, we characterize the distributional behavior of…
In order to investigate the origin of large price fluctuations, we analyze stock price changes of ten frequently traded NASDAQ stocks in the year 2002. Though the influence of the trading frequency on the aggregate return in a certain time…
We study the high frequency price dynamics of traded stocks by a model of returns using a semi-Markov approach. More precisely we assume that the intraday return are described by a discrete time homogeneous semi-Markov process and the…
The paper proposes a class of financial market models which are based on inhomogeneous telegraph processes and jump diffusions with alternating volatilities. It is assumed that the jumps occur when the tendencies and volatilities are…
In this work, we study a dynamic portfolio optimization problem related to pairs trading, which is an investment strategy that matches a long position in one security with a short position in another security with similar characteristics.…
In this paper we provide a comprehensive analysis of a structural model for the dynamics of prices of assets traded in a market originally proposed in [1]. The model takes the form of an interacting generalization of the geometric Brownian…
The volatility characterizes the amplitude of price return fluctuations. It is a central magnitude in finance closely related to the risk of holding a certain asset. Despite its popularity on trading floors, the volatility is unobservable…
A new branch based on Markov processes is developing in the recent literature of financial time series modeling. In this paper, an Indexed Markov Chain has been used to model high frequency price returns of quoted firms. The peculiarity of…
This paper derives the expressions of correlations between prices of two assets, returns of two assets, and price-return correlations of two assets that depend on statistical moments and correlations of the current values, past values, and…
We consider a tick-by-tick model of price formation, in which buy and sell orders are modeled as self-exciting point processes (Hawkes process), similar to the one in [Bacry, Delattre, Hoffmann, Muzy, Modelling microstructure noise with…
This paper aims to provide a simple modelling of speculative bubbles and derive some quantitative properties of its dynamical evolution. Starting from a description of individual speculative behaviours, we build and study a second order…
We consider a continuous-time financial market with an asset whose price is modeled by a linear stochastic differential equation with drift and volatility switching driven by a uniformly ergodic jump Markov process with a countable state…
Permutation approach is suggested as a method to investigate financial time series in micro scales. The method is used to see how high frequency trading in recent years has affected the micro patterns which may be seen in financial time…
A general method to construct recombinant tree approximations for stochastic volatility models is developed and applied to the Heston model for stock price dynamics. In this application, the resulting approximation is a four tuple Markov…
Financial markets tend to switch between various market regimes over time, making stationarity-based models unsustainable. We construct a regime-switching model independent of asset classes for risk-adjusted return predictions based on…