Hybrid dynamics for currency modeling
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.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Cars Hommes & Carl Chiarella & Xue-Zhong He, 2004.
"A Dynamical Analysis of Moving Average Rules,"
Computing in Economics and Finance 2004
238, Society for Computational Economics.
- Chiarella, C. & He, X.-Z. & Hommes, C.H., 2004. "A Dynamic Analysis of Moving Average Rules," CeNDEF Working Papers 04-14, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Carl Chiarella & Tony He & Cars H. Hommes, 2005. "A Dynamic Analysis of Moving Average Rules," Tinbergen Institute Discussion Papers 05-057/1, Tinbergen Institute.
- Carl Chiarella & Xue-Zhong He & Cars Hommes, 2004. "A Dynamic Analysis of Moving Average Rules," Research Paper Series 133, Quantitative Finance Research Centre, University of Technology, Sydney.
- 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.
- 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.
- 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.
- 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.
- 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.
- Zhi-Feng Huang & Sorin Solomon, 2001. "Stochastic Multiplicative Processes for Financial Markets," Papers cond-mat/0110273, arXiv.org.
- Marc Potters & Jean-Philippe Bouchaud, 2005.
"Trend followers lose more often than they gain,"
Science & Finance (CFM) working paper archive
500065, Science & Finance, Capital Fund Management.
- Farshid Jamshidian & Yu Zhu, 1996. "Scenario Simulation: Theory and methodology (*)," Finance and Stochastics, Springer, vol. 1(1), pages 43-67.
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)
If references are entirely missing, you can add them using this form.