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Theory of earthquakes interevent times applied to financial markets

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  • Maciej Jagielski
  • Ryszard Kutner
  • Didier Sornette

Abstract

We analyze the probability density function (PDF) of waiting times between financial loss exceedances. The empirical PDFs are fitted with the self-excited Hawkes conditional Poisson process with a long power law memory kernel. The Hawkes process is the simplest extension of the Poisson process that takes into account how past events influence the occurrence of future events. By analyzing the empirical data for 15 different financial assets, we show that the formalism of the Hawkes process used for earthquakes can successfully model the PDF of interevent times between successive market losses.

Suggested Citation

  • Maciej Jagielski & Ryszard Kutner & Didier Sornette, 2016. "Theory of earthquakes interevent times applied to financial markets," Papers 1610.08921, arXiv.org, revised Oct 2016.
    • Handle: RePEc:arx:papers:1610.08921
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    References listed on IDEAS

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    1. Gresnigt, Francine & Kole, Erik & Franses, Philip Hans, 2015. "Interpreting financial market crashes as earthquakes: A new Early Warning System for medium term crashes," Journal of Banking & Finance, Elsevier, vol. 56(C), pages 123-139.
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