Volatilities of different time resolutions — Analyzing the dynamics of market components
1997; Elsevier BV; Volume: 4; Issue: 2-3 Linguagem: Inglês
10.1016/s0927-5398(97)00007-8
ISSN1879-1727
AutoresUlrich Müller, Michel M. Dacorogna, Rakhal D. Davé, Richard B. Olsen, Olivier V. Pictet, Jacob E. von Weizsäcker,
Tópico(s)Stochastic processes and financial applications
ResumoThe diversity of agents in a heterogeneous market makes volatilities of different time resolutions behave differently. A lagged correlation study reveals that statistical volatility defined over a coarse time grid significantly predicts volatility defined over a fine grid. This empirical fact is not explained by conventional theories and models. We propose a new model class that takes into account squared price changes from time intervals of different size. This model is shown to reproduce the same empirical properties that have been found for FX intra-day data: long memory, fat-tailed distribution, and predictability of finely defined volatility by coarsely defined volatility.
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