IDEAS home Printed from https://ideas.repec.org/p/arx/papers/math-0605457.html
   My bibliography  Save this paper

Hybrid dynamics for currency modeling

Author

Listed:
  • Ted Theodosopoulos
  • Alex Trifunovic

Abstract

We present a simple hybrid dynamical model as a tool to investigate behavioral strategies based on trend following. The multiplicative symbolic dynamics are generated using a lognormal diffusion model for the at-the-money implied volatility term structure. Thus, are model exploits information from derivative markets to obtain qualititative properties of the return distribution for the underlier. We apply our model to the JPY-USD exchange rate and the corresponding 1mo., 3mo., 6mo. and 1yr. implied volatilities. Our results indicate that the modulation of autoregressive trend following using derivative-based signals significantly improves the fit to the distribution of times between successive sign flips in the underlier time series.

Suggested Citation

  • Ted Theodosopoulos & Alex Trifunovic, 2006. "Hybrid dynamics for currency modeling," Papers math/0605457, arXiv.org.
  • Handle: RePEc:arx:papers:math/0605457
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/math/0605457
    File Function: Latest version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Louzoun, Yoram & Solomon, Sorin, 2001. "Volatility driven market in a generalized Lotka–Voltera formalism," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 302(1), pages 220-233.
    2. Marc Potters & Jean-Philippe Bouchaud, 2005. "Trend followers lose more often than they gain," Papers physics/0508104, arXiv.org.
    3. Chiarella, Carl & He, Xue-Zhong & Hommes, Cars, 2006. "A dynamic analysis of moving average rules," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1729-1753.
    4. Ohnishi, Takaaki & Mizuno, Takayuki & Aihara, Kazuyuki & Takayasu, Misako & Takayasu, Hideki, 2004. "Statistical properties of the moving average price in dollar–yen exchange rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 344(1), pages 207-210.
    5. Mizuno, Takayuki & Nakano, Tohur & Takayasu, Misako & Takayasu, Hideki, 2004. "Traders' strategy with price feedbacks in financial market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 344(1), pages 330-334.
    6. Mizuno, Takayuki & Kurihara, Shoko & Takayasu, Misako & Takayasu, Hideki, 2003. "Analysis of high-resolution foreign exchange data of USD-JPY for 13 years," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 296-302.
    7. Farshid Jamshidian & Yu Zhu, 1996. "Scenario Simulation: Theory and methodology (*)," Finance and Stochastics, Springer, vol. 1(1), pages 43-67.
    8. Zhi-Feng Huang & Sorin Solomon, 2001. "Stochastic Multiplicative Processes for Financial Markets," Papers cond-mat/0110273, arXiv.org.
    9. Ohira, Toru & Sazuka, Naoya & Marumo, Kouhei & Shimizu, Tokiko & Takayasu, Misako & Takayasu, Hideki, 2002. "Predictability of currency market exchange," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 308(1), pages 368-374.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:math/0605457. 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). General contact details of provider: http://arxiv.org/ .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.