A semi-Markov model with memory for price changes
AbstractWe study the high frequency price dynamics of traded stocks by a model of returns using a semi-Markov approach. More precisely we assume that the intraday returns are described by a discrete time homogeneous semi-Markov which depends also on a memory index. The index is introduced to take into account periods of high and low volatility in the market. First of all we derive the equations governing the process and then theoretical results have been compared with empirical findings from real data. In particular we analyzed high frequency data from the Italian stock market from first of January 2007 until end of December 2010.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1109.4259.
Date of creation: Sep 2011
Date of revision: Dec 2011
Publication status: Published in J. Stat. Mech. (2011) P12009
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