Microscopic Models for Long Ranged Volatility Correlations

Irene Giardina; Jean-Philippe Bouchaud; Marc Mézard

doi:10.1016/s0378-4371(01)00280-1

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Microscopic Models for Long Ranged Volatility Correlations

Irene Giardina·Jean-Philippe Bouchaud·Marc Mézard

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Abstract

We propose a general interpretation for long-range correlation effects in the activity and volatility of financial markets. This interpretation is based on the fact that the choice between `active' and `inactive' strategies is subordinated to random-walk like processes. We numerically demonstrate our scenario in the framework of simplified market models, such as the Minority Game model with an inactive strategy, or a more sophisticated version that includes some price dynamics. We show that real market data can be surprisingly well accounted for by these simple models.

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Irene Giardina, Jean-Philippe Bouchaud, Marc Mézard. 2001-05-03. Microscopic Models for Long Ranged Volatility Correlations. https://doi.org/10.1016/s0378-4371(01)00280-1

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