Microscopic Models for Long Ranged Volatility Correlations

Details Microscopic Models for Long Ranged Volatility Correlations Microscopic Models for Long Ranged Volatility Correlations

2001-05-03

arxiv.org/abs/cond-mat/0105076v1

Physics

Condensed Matter

Disordered Systems and Neural Networks

12 pages, 4 figures. Proceedings of the NATO Advanced Research Workshop "Application of Physics to Economic Modelling ", Praga

Scientific paper

10.1016/S0378-4371(01)00280-1

We propose a general interpretation for long-range correlation effects in the activity and volatility of financial markets. This interpretation is based on the fact that the choice between `active' and `inactive' strategies is subordinated to random-walk like processes. We numerically demonstrate our scenario in the framework of simplified market models, such as the Minority Game model with an inactive strategy, or a more sophisticated version that includes some price dynamics. We show that real market data can be surprisingly well accounted for by these simple models.

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