Multifractal model of asset returns with leverage effect

✍ Scribed by Z. Eisler; J. Kertész

• Book ID: 103881450
• Publisher: Elsevier Science
• Year: 2004
• Tongue: English
• Weight: 807 KB
• Volume: 343
• Category: Article
• ISSN: 0378-4371
• DOI: 10.1016/j.physa.2004.05.061

✦ Synopsis

Multifractal processes are a relatively new tool of stock market analysis. Their power lies in the ability to take multiple orders of autocorrelations into account explicitly. In the ÿrst part of the paper we discuss the framework of the Lux model and reÿne the underlying phenomenological picture. We also give a procedure of ÿtting all parameters to empirical data. We present a new approach to account for the e ective length of power-law memory in volatility. The second part of the paper deals with the consequences of asymmetry in returns. We incorporate two related stylized facts, skewness and leverage autocorrelations into the model. Then from Monte Carlo measurements we show, that this asymmetry signiÿcantly increases the mean squared error of volatility forecasts. Based on a ÿltering method we give evidence on similar behavior in empirical data.