|Publication type:||Article in scientific journal|
|Type of review:||Peer review (publication)|
|Title:||A stochastic cascade model for FX dynamics|
|Published in:||International Journal of Theoretical and Applied Finance|
|Publisher / Ed. Institution:||World Scientific Publishing|
|Subjects:||Hydrodynamic turbulence; Kolmogorov cascade; Heterogeneous market; Information flow; Volatility|
|Subject (DDC):||332: Financial economics|
|Abstract:||A time series model for the FX dynamics is presented which takes into account structural peculiarities of the market, namely its heterogeneity and an information flow from long to short time horizons. The model emerges from an analogy between FX dynamics and hydrodynamic turbulence. The heterogeneity of the market is modeled in the form of a multiplicative cascade of time scales ranging from several minutes to a few months, analogous to the Kolmogorov cascade in turbulence. The model reproduces well the important empirical characteristics of FX rates for major currencies, as the heavy-tailed distribution of returns, their change in shape with the increasing time interval, and the persistence of volatility.|
|Fulltext version:||Published version|
|License (according to publishing contract):||Licence according to publishing contract|
|Departement:||School of Engineering|
|Organisational Unit:||Institute of Data Analysis and Process Design (IDP)|
|Appears in collections:||Publikationen School of Engineering|
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