The Price‐Volatility Feedback Rate: An Implementable Mathematical Indicator of Market Stability

Emilio Barucci, Paul Malliavin, Maria Elvira Mancino, Roberto Renò and Anton Thalmaier

Mathematical Finance, 2003, vol. 13, issue 1, 17-35

Abstract: Geometric analysis of iterated cross‐volatilities of asset prices is adopted to assess the stability of the (risk‐free) measure under infinitesimal perturbations. Perturbations of asset prices evolve through time according to an ordinary linear differential equation (hedged transfer). The decay (feedback) rate is explicitly computed through a Fourier series method implemented on high frequency time series.

Date: 2003
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