Related papers: Volatility conditional on price trends
We consider implied volatilities in asset pricing models, where the discounted underlying is a strict local martingale under the pricing measure. Our main result gives an asymptotic expansion of the right wing of the implied volatility…
We describe a model for evolving commodity forward prices that incorporates three important dynamics which appear in many commodity markets: mean reversion in spot prices and the resulting Samuelson effect on volatility term structure,…
We develop and justify methodology to consistently test for long-horizon return predictability based on realized variance. To accomplish this, we propose a parametric transaction-level model for the continuous-time log price process based…
The ARCH process (R. F. Engle, 1982) constitutes a paradigmatic generator of stochastic time series with time-dependent variance like it appears on a wide broad of systems besides economics in which ARCH was born. Although the ARCH process…
General turbulent mean statistics are shown to be characterized by a variational principle. The variational functionals, or ``effective actions'', have experimental consequences for turbulence fluctuations and are subject to realizability…
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…
By incorporating market impact and momentum traders into an agent-based model, we investigate the conditions for the occurrence of self-reinforcing feedback loops and the coevolutionary mechanism of prices and strategies. For low market…
This paper studies stochastic mechanisms under which light-tailed latent price dynamics yield realized prices with power-law tails. The realized price is modeled as $P_T=e^{X_T}$, where $X$ is a Markov-modulated L\'evy process and $T$ is…
It is well documented that a model for the underlying asset price process that seeks to capture the behaviour of the market prices of vanilla options needs to exhibit both diffusion and jump features. In this paper we assume that the asset…
A class of heterogeneous agent models is investigated where investors switch trading position whenever their motivation to do so exceeds some critical threshold. These motivations can be psychological in nature or reflect behaviour…
Econophysics and econometrics agree that there is a correlation between volume and volatility in a time series. Using empirical data and their distributions, we further investigate this correlation and discover new ways that volatility and…
A microeconomic approach is proposed to derive the fluctuations of risky asset price, where the market participants are modeled as prospect trading agents. As asset price is generated by the temporary equilibrium between demand and supply,…
Procyclicality of historical risk measure estimation means that one tends to over-estimate future risk when present realized volatility is high and vice versa under-estimate future risk when the realized volatility is low. Out of it…
Time reversal invariance can be summarized as follows: no difference can be measured if a sequence of events is run forward or backward in time. Because price time series are dominated by a randomness that hides possible structures and…
The price of electricity is far more volatile than that of other commodities normally noted for extreme volatility. The possibility of extreme price movements increases the risk of trading in electricity markets. However, underlying the…
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…
We develop a behavioral model for liquidity and volatility based on empirical regularities in trading order flow in the London Stock Exchange. This can be viewed as a very simple agent based model in which all components of the model are…
We introduce a method to infer lead-lag networks of agents' actions in complex systems. These networks open the way to both microscopic and macroscopic states prediction in such systems. We apply this method to trader-resolved data in the…
Global oil price is an important factor in determining many economic variables in the world's economy. It is generally modeled as a stochastic process and have been studied through different techniques by comparing the historic time series…
The volatility modeling for autoregressive univariate time series is considered. A benchmark approach is the stationary ARCH model of Engle (1982). Motivated by real data evidence, processes with non constant unconditional variance and ARCH…