Wednesday, March 28, 2012

1203.5893 (Fulvio Baldovin et al.)

Aftershock prediction for high-frequency financial markets' dynamics    [PDF]

Fulvio Baldovin, Francesco Camana, Michele Caraglio, Attilio L. Stella, Marco Zamparo
The occurrence of aftershocks following a major financial crash manifests the critical dynamical response of financial markets. Aftershocks put additional stress on markets, with conceivable dramatic consequences. Such a phenomenon has been shown to be common to most financial assets, both at high and low frequency. Its present-day description relies on an empirical characterization proposed by Omori at the end of 1800 for seismic earthquakes. We point out the limited predictive power in this phenomenological approach and present a stochastic model, based on the scaling symmetry of financial assets, which is potentially capable to predict aftershocks occurrence, given the main shock magnitude. Comparisons with S&P high-frequency data confirm this predictive potential.
View original: http://arxiv.org/abs/1203.5893

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