JOINT ICTP/SISSA STATISTICAL PHYSICS SEMINAR: "How scaling and market efficiency determine the irreversible

[CM ICTP - Trieste]

JOINT ICTP/SISSA STATISTICAL PHYSICS SEMINAR





Tuesday, 11 December    -    12:30 hrs.




Lecture Room 'D' - SISSA Main Building







A. STELLA
(Department of Physics and INFN, University of Padova)



"How scaling and market efficiency determine the irreversible
evolution of an index"



Abstract

In setting up a stochastic description of the time evolution of a 
financial index, the challenge consists in devising a model compatible 
with all stylized facts emerging from the analysis of financial time 
series and providing a reliable basis for simulating such series. Based 
on constraints imposed by market efficiency and on an 
inhomogeneous-time generalization of standard simple scaling, we 
propose an analytical model which accounts simultaneously for empirical 
results like the linear decorrelation of successive returns, the power 
law dependence on time of the volatility autocorrelation function, and 
the multiscaling associated to this dependence. In addition, our 
approach gives a justification and a quantitative assessment of the 
irreversible character of the index dynamics. This irreversibility 
enters as a key ingredient in a novel simulation strategy of index 
evolution which demonstrates the predictive potential of the model.