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.

Modeling stock prices by multifractional Brownian motion: an improved estimation of the pointwise regularity / Bianchi, S.; Pantanella, A.; Pianese, A.. - In: QUANTITATIVE FINANCE. - ISSN 1469-7688. - 13:8(2013), pp. 1317-1330. [10.1080/14697688.2011.594080]

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

BIANCHI S.;
2013

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.
2013
Multifractional Brownian motion; Pointwise Ho¨ lder exponent; Asset price dynamics; time varying parameter; Applied finance
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Modeling stock prices by multifractional Brownian motion: an improved estimation of the pointwise regularity / Bianchi, S.; Pantanella, A.; Pianese, A.. - In: QUANTITATIVE FINANCE. - ISSN 1469-7688. - 13:8(2013), pp. 1317-1330. [10.1080/14697688.2011.594080]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11573/1369433
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