Related papers: A Stochastic Cascade Model for FX Dynamics
Recently, Ghashghaie et al. have shown that some statistical aspects of fully developed turbulence and exchange rate fluctuations exhibit striking similarities (Nature 381, 767 (1996)). The authors then suggested that the two problems might…
Agents' heterogeneity is recognized as a driver mechanism for the persistence of financial volatility. We focus on the multiplicity of investment strategies' horizons, we embed this concept in a continuous time stochastic volatility…
Using high frequency data, we have studied empirically the change of volatility, also called volatility derivative, for various time horizons. In particular, the correlation between the volatility derivative and the volatility realized in…
In this paper we present a continuous time dynamical model of heterogeneous agents interacting in a financial market where transactions are cleared by a market maker. The market is composed of fundamentalist, trend following and contrarian…
Analogies between the price dynamics in the foreign exchange market and 3-dimensional fully developed turbulence were recently presented in Nature vol. 381, 767-769 (1996). Independently, we have carried out a study comparing the parallel…
In this paper we propose a new model for volatility fluctuations in financial time series. This model relies on a non-stationary gaussian process that exhibits aging behavior. It turns out that its properties, over any finite time interval,…
Velocity increments over a distance r and turbulent energy dissipation on a box of size r are well described by the multifractal models of fully developed turbulence. These quantities and models however, do not involve time-correlations and…
We develop a framework especially suited to the autocorrelation properties observed in financial times series, by borrowing from the physical picture of turbulence. The success of our approach as applied to high frequency foreign exchange…
Behavioural finance offers a valuable framework for examining foreign exchange (FX) market dynamics, including puzzles such as excess volatility and fat-tailed distributions. Yet, when it comes to their interaction with the `real' side of…
Financial time series exhibit a number of interesting properties that are difficult to explain with simple models. These properties include fat-tails in the distribution of price fluctuations (or returns) that are slowly removed at longer…
Multifractality is ubiquitously observed in complex natural and socioeconomic systems. Multifractal analysis provides powerful tools to understand the complex nonlinear nature of time series in diverse fields. Inspired by its striking…
In this paper, we provide a simple, ``generic'' interpretation of multifractal scaling laws and multiplicative cascade process paradigms in terms of volatility correlations. We show that in this context 1/f power spectra, as observed…
We propose a novel framework for modeling time-varying persistence in economic time series, allowing for smoothly evolving heterogeneity in shock dynamics. We leverage localized regression techniques to flexibly identify changes in…
Multiplicative random cascade model naturally reproduces the intermittency or multifractality, which is frequently shown among hierarchical complex systems such as turbulence and financial markets. As described herein, we investigate the…
We introduce a tractable multi-currency model with stochastic volatility and correlated stochastic interest rates that takes into account the smile in the FX market and the evolution of yield curves. The pricing of vanilla options on FX…
In this paper we show similarities between turbulence and financial systems. Motivated by similarities between the two systems, we construct a multiscale model for hierarchical financial structures that exhibits a constant cascade of wealth…
We discuss price variations distributions in foreign exchange markets, characterizing them both in calendar and business time frameworks. The price dynamics is found to be the result of two distinct processes, a multi-variance diffusion and…
A novel model of intermittency is presented in which the dynamics of the rates of energy transfer between successive steps in the energy cascade is described by a hierarchy of stochastic differential equations. The probability distribution…
Dynamic heterogeneity has often been modeled by assuming that a single-particle observable, fluctuating at a molecular scale, is influenced by its coupling to environmental variables fluctuating on a second, perhaps slower, time scale.…
This paper aims at solving FX market volatility modeling problem and finding the most becoming approach to this task. Validity of two competing approaches, classical econometric generalized conditional heteroscedasticity and mathematical…