Modeling of waiting times and price changes in currency exchange data

Przemysław Repetowicz and Peter Richmond

Physica A: Statistical Mechanics and its Applications, 2004, vol. 343, issue C, 677-693

Abstract: A theory which describes the share price evolution at financial markets as a continuous-time random walk (Physica A 287 (2000) 468, Physica A 314 (2002) 749, Eur. Phys. J. B 27 (2002) 273, Physica A 376 (2000) 284) has been generalized in order to take into account the dependence of waiting times t on price returns x. A joint probability density function (pdf) φX,T(x,t) which uses the concept of a Lévy stable distribution is worked out. The theory is fitted to high-frequency US $/Japanese Yen exchange rate and low-frequency 19th century Irish stock data. The theory has been fitted both to price return and to waiting time data and the adherence to data, in terms of the χ2 test statistic, has been improved when compared to the old theory.

Keywords: Stochastic processes; Continuous-time random walk; Lévy stable distributions; Contingency table; Interpolation; Curve fitting; Statistical finance; Econophysics (search for similar items in EconPapers)
Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:343:y:2004:i:c:p:677-693

DOI: 10.1016/j.physa.2004.06.162

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