IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

The ups and downs of the renormalization group applied to financial time series

  • Challet, Damien
  • Peirano, Pier Paolo

Starting from inhomogeneous time scaling and linear decorrelation between successive price returns, Baldovin and Stella recently devised a model describing the time evolution of a financial index. We first make it fully explicit by using Student distributions instead of power law-truncated Levy distributions; we also show that the analytic tractability of the model extends to the larger class of symmetric generalized hyperbolic distributions and provide a full computation of their multivariate characteristic functions. The Baldovin and Stella model, while mimicking well volatility relaxation phenomena such as the Omori law, fails to reproduce other stylized facts such as the leverage effect or some time reversal asymmetries. We discuss how to modify the dynamics of this process in order to reproduce real data more accurately.

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://mpra.ub.uni-muenchen.de/9770/1/MPRA_paper_9770.pdf
File Function: original version
Download Restriction: no

File URL: http://mpra.ub.uni-muenchen.de/16358/2/MPRA_paper_16358.pdf
File Function: revised version
Download Restriction: no

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9770.

as
in new window

Length:
Date of creation: 26 Jul 2008
Date of revision:
Handle: RePEc:pra:mprapa:9770
Contact details of provider: Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de

More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Laurent Calvet & Adlai Fisher & Benoit Mandelbrot, 1999. "A Multifractal Model of Assets Returns," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-072, New York University, Leonard N. Stern School of Business-.
  2. Lisa Borland, 2002. "Option Pricing Formulas based on a non-Gaussian Stock Price Model," Papers cond-mat/0204331, arXiv.org, revised Sep 2002.
  3. Dreier, I. & Kotz, S., 2002. "A note on the characteristic function of the t-distribution," Statistics & Probability Letters, Elsevier, vol. 57(3), pages 221-224, April.
  4. R. Cont, 2001. "Empirical properties of asset returns: stylized facts and statistical issues," Quantitative Finance, Taylor & Francis Journals, vol. 1(2), pages 223-236.
  5. S. Drozdz & M. Forczek & J. Kwapien & P. Oswiecimka & R. Rak, 2007. "Stock market return distributions: from past to present," Papers 0704.0664, arXiv.org.
  6. Gilles Zumbach, 2004. "Volatility processes and volatility forecast with long memory," Quantitative Finance, Taylor & Francis Journals, vol. 4(1), pages 70-86.
  7. F. Lillo, 2007. "Limit order placement as an utility maximization problem and the origin of power law distribution of limit order prices," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 55(4), pages 453-459, 02.
  8. Bacry, Emmanuel & Kozhemyak, Alexey & Muzy, Jean-François, 2006. "Are asset return tail estimations related to volatility long-range correlations?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 370(1), pages 119-126.
  9. Paul Lynch & Gilles Zumbach, 2003. "Market heterogeneities and the causal structure of volatility," Quantitative Finance, Taylor & Francis Journals, vol. 3(4), pages 320-331.
  10. Drożdż, S. & Forczek, M. & Kwapień, J. & Oświe¸cimka, P. & Rak, R., 2007. "Stock market return distributions: From past to present," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 383(1), pages 59-64.
  11. Jean-Philippe Bouchaud & Marc Potters & Martin Meyer, 1999. "Apparent multifractality in financial time series," Science & Finance (CFM) working paper archive 9906347, Science & Finance, Capital Fund Management.
Full references (including those not matched with items on IDEAS)

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

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:9770. 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: (Ekkehart Schlicht)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.