Physics – Physics and Society
Scientific paper
2006-09-15
Physical Review E 75 (2007) 046110
Physics
Physics and Society
10, 6 colored figures
Scientific paper
10.1103/PhysRevE.75.046110
We present a detailed study on the mean first-passage time of volatility processes. We analyze the theoretical expressions based on the most common stochastic volatility models along with empirical results extracted from daily data of major financial indices. We find in all these data sets a very similar behavior that is far from being that of a simple Wiener process. It seems necessary to include a framework like the one provided by stochastic volatility models with a reverting force driving volatility toward its normal level to take into account memory and clustering effects in volatility dynamics. We also detect in data a very different behavior in the mean first-passage time depending whether the level is higher or lower than the normal level of volatility. For this reason, we discuss asymptotic approximations and confront them to empirical results with a good agreement, specially with the ExpOU model.
Masoliver Jaume
Perelló Josep
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