Title: A stochastic cascade model for FX dynamics
Authors : Breymann, Wolfgang
Ghashghaie, Shoaleh
Talkner, Peter
Published in : International Journal of Theoretical and Applied Finance
Volume(Issue) : 3
Issue : 3
Pages : 357
Pages to: 360
Publisher / Ed. Institution : World Scientific
Issue Date: 2000
License (according to publishing contract) : Licence according to publishing contract
Type of review: Peer review (Publication)
Language : English
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.
Departement: School of Engineering
Organisational Unit: Institute of Data Analysis and Process Design (IDP)
Publication type: Article in scientific Journal
DOI : 10.1142/S021902490000019X
ISSN: 0219-0249
1793-6322
URI: https://digitalcollection.zhaw.ch/handle/11475/4674
Appears in Collections:Publikationen School of Engineering

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