Advanced Search
MyIDEAS: Login to save this paper or follow this series

A Stochastic Feedback Model for Volatility

Contents:

Author Info

  • Raoul Golan
  • Austin Gerig

Abstract

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 timescales, strong autocorrelations in absolute returns but zero autocorrelation in returns themselves, and multifractal scaling. Although the underlying cause of these features is unknown, there is growing evidence they originate in the behavior of volatility, i.e., in the behavior of the magnitude of price fluctuations. In this paper, we posit a feedback mechanism for volatility that closely reproduces the non-trivial properties of empirical prices. The model is parsimonious, contains only two parameters that are easily estimated, fits empirical data better than standard models, and can be grounded in a straightforward framework where volatility fluctuations are driven by the estimation error of an exogenous Poisson rate.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://arxiv.org/pdf/1306.4975
File Function: Latest version
Download Restriction: no

Bibliographic Info

Paper provided by arXiv.org in its series Papers with number 1306.4975.

as in new window
Length:
Date of creation: Jun 2013
Date of revision: Nov 2013
Handle: RePEc:arx:papers:1306.4975

Contact details of provider:
Web page: http://arxiv.org/

Related research

Keywords:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:arx:papers:1306.4975. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.