Perelló, Josep, Gutiérrez-Roig, Mario and Masoliver, Jaume (2011) Scaling properties and universality of first-passage-time probabilities in financial markets. Physical Review E, 84 (6). 066110 . doi:10.1103/PhysRevE.84.066110

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Abstract

Financial markets provide an ideal frame for the study of crossing or first-passage time events of non-Gaussian correlated dynamics, mainly because large data sets are available. Tick-by-tick data of six futures markets are herein considered, resulting in fat-tailed first-passage time probabilities. The scaling of the return with its standard deviation collapses the probabilities of all markets examined—and also for different time horizons—into single curves, suggesting that first-passage statistics is market independent (at least for high-frequency data). On the other hand, a very closely related quantity, the survival probability, shows, away from the center and tails of the distribution, a hyperbolic
t
−
1
/
2
decay typical of a Markovian dynamics, albeit the existence of memory in markets. Modifications of the Weibull and Student distributions are good candidates for the phenomenological description of first-passage time properties under certain regimes. The scaling strategies shown may be useful for risk control and algorithmic trading.

Item Type:	Journal Article
Divisions:	Faculty of Social Sciences > Warwick Business School > Behavioural Science Faculty of Social Sciences > Warwick Business School
Journal or Publication Title:	Physical Review E
Publisher:	American Physical Society
ISSN:	1539-3755
Official Date:	14 December 2011
Dates:	Date Event 14 December 2011 Published
Volume:	84
Number:	6
Article Number:	066110
DOI:	10.1103/PhysRevE.84.066110
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access

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