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Using the First Passage Times in Markov Chain model to support financial decisions on the stock exchange

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  • Józef Stawicki

    (Nicolaus Copernicus University)

Abstract

The purpose of this article is to present the possibilities of using such a tool as Markov chain to analyse the dynamics of returns observed at the Warsaw Stock Exchange. Process analysis is the basis for decision-making with regard to the accepted horizon. Expected times for achieving specified states, understood as intervals of rates of return, in particular those describing negative rates of return, are extremely important. In this context, there is a possibility of determining easily the value at risk with the accepted probability.

Suggested Citation

  • Józef Stawicki, 2016. "Using the First Passage Times in Markov Chain model to support financial decisions on the stock exchange," Dynamic Econometric Models, Uniwersytet Mikolaja Kopernika, vol. 16, pages 37-47.
    • Handle: RePEc:cpn:umkdem:v:16:y:2016:p:37-47
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    File URL: https://apcz.umk.pl/DEM/article/view/DEM.2016.003/10666
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    References listed on IDEAS

    as
    1. Wai-Ki Ching & Michael K. Ng, 2006. "Markov Chains: Models, Algorithms and Applications," International Series in Operations Research and Management Science, Springer, number 978-0-387-29337-0, December.
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    Cited by:

    1. Alicja Ganczarek-Gamrot & Józef Stawicki, 2017. "Comparison of certain dynamic estimation methods of Value at Risk on Polish gas market," Dynamic Econometric Models, Uniwersytet Mikolaja Kopernika, vol. 17, pages 81-96.

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    More about this item

    Keywords

    Markov chain; First passage times; Normal white noise; VaR;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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