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

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

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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(13)

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• Volatility clustering in agent based market models
• 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
• An algorithmic look at financial volatility

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