The Factorial Path-Dependent Market Model

Léo Parent ()
Additional contact information
Léo Parent: UP1 EMS - Université Paris 1 Panthéon-Sorbonne - École de Management de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne

Working Papers from HAL

Abstract: This article introduces the factorial path-dependent market (FPDM) model, a multivariate asset price dynamics model in which these dynamics are determined by a set of elementary factors. In this framework, both the factorial drift and factorial volatilities are conditioned by the past dynamics of the factorial portfolios, resulting in a model mostly path-dependent. Derived from this theoretical foundation, the paper subsequently designs a market generator positioned midway between parametric models based on strong assumptions and purely data-driven approaches. The aim is to combine the best of both worlds, offering a model capable of faithfully reproducing the empirical financial dynamics while maintaining a clear understanding of the financial phenomena driven by the simulated price paths. To evaluate the effectiveness of the proposed approach, a thorough out-of-sample assessment of the market generator is conducted based on the S&P500 investment universe.

Keywords: Multivariate process; Market generator; Generation of market scenarios; Complex dependence structures; Nonlinear dependences; Volatility modeling; Path-dependent model (search for similar items in EconPapers)
Date: 2024-10-24
Note: View the original document on HAL open archive server: https://hal.science/hal-04751411v1
References: Add references at CitEc
Citations:

Downloads: (external link)
https://hal.science/hal-04751411v1/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-04751411

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().