Related papers: Multifractal model of asset returns with leverage …
Excessive leverage, i.e. the abuse of debt financing, is considered one of the primary factors in the default of financial institutions. Systemic risk results from correlations between individual default probabilities that cannot be…
Modelling accurately financial price variations is an essential step underlying portfolio allocation optimization, derivative pricing and hedging, fund management and trading. The observed complex price fluctuations guide and constraint our…
We investigate the general problem of how to model the kinematics of stock prices without considering the dynamical causes of motion. We propose a stochastic process with long-range correlated absolute returns. We find that the model is…
The percolation model of stock market speculation allows an asymmetry (in the return distribution) leading to fast downward crashes and slow upward recovery. We see more small upturns and more intermediate downturns.
We study the problem of forecasting volatility for the multifractal random walk model. In order to avoid the ill posed problem of estimating the correlation length T of the model, we introduce a limiting object defined in a quotient space;…
The concepts of scale invariance, self-similarity and scaling have been fruitfully applied to the study of price fluctuations in financial markets. After a brief review of the properties of stable Levy distributions and their applications…
Modern macroeconometrics often relies on time series models for which it is time-consuming to evaluate the likelihood function. We demonstrate how Bayesian computations for such models can be drastically accelerated by reweighting and…
This paper provides robust, new evidence on the causal drivers of market troughs. We demonstrate that conclusions about these triggers are critically sensitive to model specification, moving beyond restrictive linear models with a flexible…
Modern evolvements of the technologies have been leading to a profound influence on the financial market. The introduction of constituents like Exchange-Traded Funds, and the wide-use of advanced technologies such as algorithmic trading,…
We propose a general interpretation for long-range correlation effects in the activity and volatility of financial markets. This interpretation is based on the fact that the choice between `active' and `inactive' strategies is subordinated…
We study the temporal fluctuations in time-dependent stock prices (both individual and composite) as a stochastic phenomenon using general techniques and methods of nonequilibrium statistical mechanics. In particular, we analyze stock price…
The inversion formula for conservative multifractal measures was unveiled mathematically a decade ago, which is however not well tested in real complex systems. In this Letter, we propose to verify the inversion formula using high-frequency…
We build a simple model of leveraged asset purchases with margin calls. Investment funds use what is perhaps the most basic financial strategy, called "value investing", i.e. systematically attempting to buy underpriced assets. When funds…
It is commonly believed that the correlations between stock returns increase in high volatility periods. We investigate how much of these correlations can be explained within a simple non-Gaussian one-factor description with time…
Using microscopic price models based on Hawkes processes, it has been shown that under some no-arbitrage condition, the high degree of endogeneity of markets together with the phenomenon of metaorders splitting generate rough Heston-type…
We present a simple agent-based model of a financial system composed of leveraged investors such as banks that invest in stocks and manage their risk using a Value-at-Risk constraint, based on historical observations of asset prices. The…
We study the exponential Ornstein-Uhlenbeck stochastic volatility model and observe that the model shows a multiscale behavior in the volatility autocorrelation. It also exhibits a leverage correlation and a probability profile for the…
One stylized feature of financial volatility impacting the modeling process is long memory. This paper examines long memory for alternative risk measures, observed absolute and squared returns for Daily REITs and compares the findings for a…
We study in details the skew of stock option smiles, which is induced by the so-called leverage effect on the underlying -- i.e. the correlation between past returns and future square returns. This naturally explains the anomalous…
This paper characterizes the equilibrium in a continuous time financial market populated by heterogeneous agents who differ in their rate of relative risk aversion and face convex portfolio constraints. The model is studied in an…