On a universal mechanism for long-range volatility correlations

DOI10.1088/1469-7688/1/2/302MaRDI QIDQ4646478zbMATH OpenOpenAlexWikidataFDO

Authors Jean-Philippe Bouchaud, Irene Giardina, M. Mzard

Publication date 14 January 2019

Published in Quantitative Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/cond-mat/0012156

zbMATH Keywords

financial marketslong-range volatility correlationsminority game modelrandom-walk-like processes

Mathematics Subject Classification ID

Other game-theoretic models (91A40) Derivative securities (option pricing, hedging, etc.) (91G20)

Abstract: We propose a general interpretation for long-range correlation effects in the activity and volatility of financial markets. This interpretation is based on the fact that the choice between `active' and `inactive' strategies is subordinated to random-walk like processes. We numerically demonstrate our scenario in the framework of simplified market models, such as the Minority Game model with an inactive strategy. We show that real market data can be surprisingly well accounted for by these simple models.

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