Challet, Damien and Peirano, Pier Paolo (2008): The ups and downs of the renormalization group applied to financial time series.
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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.
|Item Type:||MPRA Paper|
|Original Title:||The ups and downs of the renormalization group applied to financial time series|
|Keywords:||Stylized Facts; Student Processes; Hyperbolic Distributions; Renormalization Group|
|Subjects:||C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C40 - General
G - Financial Economics > G1 - General Financial Markets > G10 - General
|Depositing User:||Pier Paolo Peirano|
|Date Deposited:||30. Jul 2008 10:30|
|Last Modified:||22. Feb 2013 09:05|
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