Modelling and forecasting the kurtosis and returns distributions of financial markets: irrational fractional Brownian motion model approach

Gurjeet Dhesi (), Bilal Shakeel () and Marcel Ausloos
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Gurjeet Dhesi: London South Bank University
Bilal Shakeel: London South Bank University

Annals of Operations Research, 2021, vol. 299, issue 1, No 55, 1397-1410

Abstract: Abstract This paper reports a new methodology and results on the forecast of the numerical value of the fat tail(s) in asset returns distributions using the irrational fractional Brownian motion model. Optimal model parameter values are obtained from fits to consecutive daily 2-year period returns of S&P500 index over [1950–2016], generating 33-time series estimations. Through an econometric model, the kurtosis of returns distributions is modelled as a function of these parameters. Subsequently an auto-regressive analysis on these parameters advances the modelling and forecasting of kurtosis and returns distributions, providing the accurate shape of returns distributions and measurement of Value at Risk.

Keywords: Financial forecasting and simulation (G12); Asset pricing (G17); Simulation modelling (C63); Financial econometrics (C58) (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s10479-019-03305-z

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