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Estimating and controlling large risks has become one of the main concern of financial institutions. This requires the development of adequate statistical models and theoretical tools (which go beyond the traditionnal theories based on Gaussian statistics), and their practical implementation....
Persistent link: https://www.econbiz.de/10005695655
We present compelling empirical evidence for a new interpretation of the Forward Rate Curve (FRC) term structure. We find that the average FRC follows a square-root law, with a prefactor related to the spot volatility, suggesting a Value-at-Risk like pricing. We find a striking correlation...
Persistent link: https://www.econbiz.de/10005695656
We present an analysis of the time behavior of the S&P 500 (Standard and Poors) New York stock exchange index before and after the October 1987 market crash and identify precursory patterns as well as aftershock signatures and characteristic oscillations of relaxation. Combined, they all suggest...
Persistent link: https://www.econbiz.de/10005695657
In this paper we study empirically the Forward Rate Curve (FRC) of 5 different currencies. We confirm and extend the findings of our previous investigation of the U.S. Forward Rate Curve. In particular, the average FRC follows a square-root law, with a prefactor related to the spot volatility,...
Persistent link: https://www.econbiz.de/10005695658
We consider the problem of option pricing and hedging when stock returns are correlated in time. Within a quadratic-risk minimisation scheme, we obtain a general formula, valid for weakly correlated non-Gaussian processes. We show that for Gaussian price increments, the correlations are...
Persistent link: https://www.econbiz.de/10005695659
We propose a non linear Langevin equation as a model for stock market fluctuations and crashes. This equation is based on an identification of the different processes influencing the demand and supply, and their mathematical transcription. We emphasize the importance of feedback effects of price...
Persistent link: https://www.econbiz.de/10005695662
We study a generic model for self-referential behaviour in financial markets, where agents attempt to use some (possibly fictitious) causal correlations between a certain quantitative information and the price itself. This correlation is estimated using the past history itself, and is used by a...
Persistent link: https://www.econbiz.de/10005129568
Stock prices are observed to be random walks in time despite a strong, long term memory in the signs of trades (buys or sells). Lillo and Farmer have recently suggested that these correlations are compensated by opposite long ranged fluctuations in liquidity, with an otherwise permanent market...
Persistent link: https://www.econbiz.de/10005129569
The simplest field theory description of the multivariate statistics of forward rate variations over time and maturities, involves a quadratic action containing a gradient squared rigidity term. However, this choice leads to a spurious kink (infinite curvature) of the normalized correlation...
Persistent link: https://www.econbiz.de/10005129570
We study Sutton's `microcanonical' model for the internal organisation of firms, that leads to non trivial scaling properties for the statistics of growth rates. We show that the growth rates are asymptotically Gaussian in this model, at variance with empirical results. We also obtain the...
Persistent link: https://www.econbiz.de/10005129571