We adapt the multifractal random walk model by Bacry et al. (2001) to realized volatilities (denoted RV-MRW) and take stock of recent theoretical insights on this model in Duchon et al. (2012) to derive forecasts of financial volatility. Moreover, we propose a new extension of the binomial...

Over the last decade, agent-based models in economics have reached a state of maturity that brought the tasks of statistical inference and goodness-of-fit of such models on the agenda of the research community. While most available papers have pursued a frequentist approach adopting either...

Tests of excessive volatility along the lines of Shiller (1981) and Leroy and Porter (1981) count among the most convincing pieces of evidence against the validity of the time-honored efficient market hypothesis. Recently, using Shiller s distinction between ex-ante rational (fundamental) price...

Estimation of agent-based models is currently an intense area of research. Recent contributions have to a large extent resorted to simulation-based methods mostly using some form of simulated method of moments estimation (SMM). There is, however, an entire branch of statistical methods that...

This chapter reviews recent research adopting methods from statistical physics in theoretical or empirical work in economics and finance. The bulk of what has recently become known as 'econophysics' in broader circles draws its motivation from observed scaling laws in financial markets and the...

Simulations of agent-based models have shown that the stylized facts (unit-root, fat tails and volatility clustering) of financial markets have a possible explanation in the interactions among agents. However, the complexity, originating from the presence of non-linearity and interactions, often...

Financial markets (share markets, foreign exchange markets and others) are all characterized by a number of universal power laws. The most prominent example is the ubiquitous finding of a robust, approximately cubic power law characterizing the distribution of large returns. A similarly robust...

This review deals with several microscopic models of financial markets which have been studied by economists and physicists over the last decade: Kim- Markowitz, Levy-Levy-Solomon, Cont-Bouchaud, Solomon-Weisbuch, Lux-Marchesi, Donangelo-Sneppen and Solomon-Levy-Huang. After an overview of...

High-frequency financial data are characterized by a set of ubiquitous statistical properties that prevail with surprising uniformity. While these 'stylized facts' have been well-known for decades, attempts at their behavioral explanation have remained scarce. However, recently a new branch of...

In this paper we consider daily financial data from various sources (stock market indices, foreign exchange rates and bonds) and analyze their multi-scaling properties by estimating the parameters of a Markov-switching multifractal model (MSM) with Lognormal volatility components. In order to...