Underlying dynamics of typical fluctuations of an emerging market price index: the Heston model from minutes to months


Autoria(s): Vicente, R.; de Toledo, C. M.; Leite, VBP; Caticha, N.
Contribuinte(s)

Universidade Estadual Paulista (UNESP)

Data(s)

20/05/2014

20/05/2014

15/02/2006

Resumo

We investigate the Heston model with stochastic volatility and exponential tails as a model for the typical price fluctuations of the Brazilian São Paulo Stock Exchange Index (IBOVESPA). Raw prices are first corrected for inflation and a period spanning 15 years characterized by memoryless returns is chosen for the analysis. Model parameters are estimated by observing volatility scaling and correlation properties. We show that the Heston model with at least two time scales for the volatility mean reverting dynamics satisfactorily describes price fluctuations ranging from time scales larger than 20min to 160 days. At time scales shorter than 20 min we observe autocorrelated returns and power law tails incompatible with the Heston model. Despite major regulatory changes, hyperinflation and currency crises experienced by the Brazilian market in the period studied, the general success of the description provided may be regarded as an evidence for a general underlying dynamics of price fluctuations at intermediate mesoeconomic time scales well approximated by the Heston model. We also notice that the connection between the Heston model and Ehrenfest urn models could be exploited for bringing new insights into the microeconomic market mechanics. (c) 2005 Elsevier B.V. All rights reserved.

Formato

272-288

Identificador

http://dx.doi.org/10.1016/j.physa.2005.06.095

Physica A-statistical Mechanics and Its Applications. Amsterdam: Elsevier B.V., v. 361, n. 1, p. 272-288, 2006.

0378-4371

http://hdl.handle.net/11449/33977

10.1016/j.physa.2005.06.095

WOS:000235533200021

Idioma(s)

eng

Publicador

Elsevier B.V.

Relação

Physica A: Statistical Mechanics and Its Applications

Direitos

closedAccess

Palavras-Chave #econophysics #stochastic volatility #Heston model #high-frequency finance
Tipo

info:eu-repo/semantics/article