Modeling stock prices by multifractional Brownian motion: an improved estimation of the pointwise regularity

Sergio Bianchi, A. Pantanella and A. Pianese

Quantitative Finance, 2013, vol. 13, issue 8, 1317-1330

Abstract: This paper deals with the problem of estimating the pointwise regularity of multifractional Brownian motion, assumed as a model of stock price dynamics. We (a) correct the shifting bias affecting a class of absolute moment-based estimators and (b) build a data-driven algorithm in order to dynamically check the local Gaussianity of the process. The estimation is therefore performed for three stock indices: the Dow Jones Industrial Average, the FTSE 100 and the Nikkei 225. Our findings show that, after the correction, the pointwise regularity fluctuates around 1/2 (the sole value consistent with the absence of arbitrage), but significant deviations are also observed.

Date: 2013
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Citations: View citations in EconPapers (18)

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DOI: 10.1080/14697688.2011.594080

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