Berlin 2008 – scientific programme

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AKSOE: Arbeitskreis Physik sozio-ökonomischer Systeme

AKSOE 13: Poster Session (posters on display 10:00-19:00)

AKSOE 13.6: Poster

Wednesday, February 27, 2008, 17:30–19:00, Poster G

Long-term memory effects in volatility first-passage time — •Josep Perelló and Jaume Masoliver — Departament de Física Fonamental, Universitat de Barcelona, Diagonal, 647, E-08028 Barcelona, Spain

Extreme times techniques, generally applied to nonequilibrium statistical mechanical processes, are also useful for a better understanding of financial markets. We present a detailed study on the mean first-passage time for the volatility of return time series [1]. The empirical results extracted from daily data of major indices seem to follow the same law regardless of the kind of index thus suggesting an universal pattern. The empirical mean first-passage time to a certain level L is fairly different from that of the Wiener process showing a dissimilar behavior depending on whether L is higher or lower than the average volatility. All of this indicates a more complex dynamics in which a reverting force drives volatility toward its mean value. We thus present the mean first-passage time expressions of the most common stochastic volatility models whose approach is comparable to the random diffusion description. We discuss asymptotic approximations of these models and confront them to empirical results with a good agreement with the exponential Ornstein-Uhlenbeck model.

[1] J.P and J.M., Phys. Rev. E 75, 046110 (2007)