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Scaling properties and universality of first-passage-time probabilities in financial markets
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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 ISSN 1539-3755.
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Official URL: http://dx.doi.org/10.1103/PhysRevE.84.066110
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
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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 | ||||
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| Divisions: | Faculty of Social Sciences > Warwick Business School > Behavioural Science Faculty of Social Sciences > Warwick Business School |
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| Journal or Publication Title: | Physical Review E | ||||
| Publisher: | American Physical Society | ||||
| ISSN: | 1539-3755 | ||||
| Official Date: | 14 December 2011 | ||||
| Dates: |
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| 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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