The continuous time random walk formalism in financial markets

Jaume Masoliver (), Miquel Montero () and Josep Perelló ()

Modeling, Computing, and Mastering Complexity 2003 from Society for Computational Economics

Abstract: We adapt the continuous time random walk (CTRW) formalism to describe the asset price evolution. We show some of the problems that can be treated using this approach. We basically focus on two aspects: (i) the derivation of the price distribution from high-frequency data; and (ii) the inverse problem, that is, obtaining information on the market microstructure as reflected by high-frequency data knowing only the daily volatility. We apply the formalism to actual financial data and try to show that the CTRW offers alternative tools to deal with several complex issues of financial markets.

Keywords: continuous time random walk; volatility; financial markets; market microstructure (search for similar items in EconPapers)
JEL-codes: C16 D4 L1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ets, nep-fin and nep-rmg
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Related works:
Working Paper: The continuous time random walk formalism in financial markets (2006)
Journal Article: The continuous time random walk formalism in financial markets (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:sce:cplx03:24

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