Mean exit time and survival probability within the CTRW formalism

DOI10.1140/EPJB/E2007-00128-1zbMATH Open1189.91165arXivphysics/0607268OpenAlexW2160182528MaRDI QIDQ978813FDOQ978813

Authors: Miquel Montero, J. Masoliver 

Publication date: 25 June 2010

Published in: The European Physical Journal B. Condensed Matter and Complex Systems (Search for Journal in Brave)

Abstract: An intense research on financial market microstructure is presently in progress. Continuous time random walks (CTRWs) are general models capable to capture the small-scale properties that high frequency data series show. The use of CTRW models in the analysis of financial problems is quite recent and their potentials have not been fully developed. Here we present two (closely related) applications of great interest in risk control. In the first place, we will review the problem of modelling the behaviour of the mean exit time (MET) of a process out of a given region of fixed size. The surveyed stochastic processes are the cumulative returns of asset prices. The link between the value of the MET and the timescale of the market fluctuations of a certain degree is crystal clear. In this sense, MET value may help, for instance, in deciding the optimal time horizon for the investment. The MET is, however, one among the statistics of a distribution of bigger interest: the survival probability (SP), the likelihood that after some lapse of time a process remains inside the given region without having crossed its boundaries. The final part of the article is devoted to the study of this quantity. Note that the use of SPs may outperform the standard "Value at Risk" (VaR) method for two reasons: we can consider other market dynamics than the limited Wiener process and, even in this case, a risk level derived from the SP will ensure (within the desired quintile) that the quoted value of the portfolio will not leave the safety zone. We present some preliminary theoretical and applied results concerning this topic.

Full work available at URL: https://arxiv.org/abs/physics/0607268

Recommendations

• Anomalous waiting times in high-frequency financial data
• Aging in financial market
• scientific article; zbMATH DE number 1642344
• Finite-time survival probability and credit default swaps pricing under geometric Lévy markets
• On exit times of multivariate random walk with some applications to finance

Mathematics Subject Classification ID

Time series, auto-correlation, regression, etc. in statistics (GARCH) (62M10) Applications of statistics to actuarial sciences and financial mathematics (62P05) Economic time series analysis (91B84) Applications of statistical and quantum mechanics to economics (econophysics) (91B80) Stochastic methods (Fokker-Planck, Langevin, etc.) applied to problems in time-dependent statistical mechanics (82C31)

Cites Work

• Handbook of stochastic methods for physics, chemistry and the natural sciences
• Random walks on lattices. II
• Option pricing: A simplified approach
• A renewal process of Mittag-Leffler type.
• Title not available (Why is that?)

Cited In (3)

• Statistical and transport properties of a one-dimensional random walk with periodically distributed trapping intervals
• Anomalous waiting times in high-frequency financial data
• Survival probability of random walks leaping over traps

This page was built for publication: Mean exit time and survival probability within the CTRW formalism

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q978813)