On a universal mechanism for long-range volatility correlations

DOI10.1088/1469-7688/1/2/302zbMATH Open1405.91589arXivcond-mat/0012156OpenAlexW3124247185WikidataQ61033408 ScholiaQ61033408MaRDI QIDQ4646478FDOQ4646478

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

Publication date: 14 January 2019

Published in: Quantitative Finance (Search for Journal in Brave)

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.

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

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zbMATH Keywords

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

Mathematics Subject Classification ID

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

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• Exact Hurst exponent and crossover behavior in a limit order market model
• The cavity method for minority games between arbitrageurs on financial markets
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• Power laws in economics and finance: some ideas from physics
• Heterogeneous expectations and long-range correlation of the volatility of asset returns
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