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The distribution of first-passage times and durations in FOREX and future markets

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Title: The distribution of first-passage times and durations in FOREX and future markets
Authors: Sazuka, Naoya Browse this author
Inoue, Jun-ichi Browse this author →KAKEN DB
Scalas, Enrico Browse this author
Keywords: Stochastic process
Time interval distribution
Mittag-Leffler survival function
Weibull distribution
The Sony Bank USD/JPY rate
BTP futures
Average waiting time
Gini index
Issue Date: 15-Jul-2009
Publisher: Elsevier Science
Journal Title: Physica. A, Statistical mechanics and its applications
Volume: 388
Issue: 14
Start Page: 2839
End Page: 2853
Publisher DOI: 10.1016/j.physa.2009.03.027
Abstract: Possible distributions are discussed for intertrade durations and first-passage processes in financial markets. The view-point of renewal theory is assumed. In order to represent market data with relatively long durations, two types of distributions are used, namely a distribution derived from the Mittag Leffler survival function and the Weibull distribution. For the Mittag-Leffler type distribution, the average waiting time (residual life time) is strongly dependent on the choice of a cut-off parameter tmax, whereas the results based on the Weibull distribution do not depend on such a cut-off. Therefore, a Weibull distribution is more convenient than a Mittag Leffler type if one wishes to evaluate relevant statistics such as average waiting time in financial markets with long durations. On the other hand, we find that the Gini index is rather independent of the cut-off parameter. Based on the above considerations, we propose a good candidate for describing the distribution of first-passage time in a market: The Weibull distribution with a power-law tail. This distribution compensates the gap between theoretical and empirical results more efficiently than a simple Weibull distribution. It should be stressed that a Weibull distribution with a power-law tail is more flexible than the Mittag Leffler distribution, which itself can be approximated by a Weibull distribution and a power-law. Indeed, the key point is that in the former case there is freedom of choice for the exponent of the power-law attached to the Weibull distribution, which can exceed 1 in order to reproduce decays faster than possible with a Mittag Leffler distribution. We also give a useful formula to determine an optimal crossover point minimizing the difference between the empirical average waiting time and the one predicted from renewal theory. Moreover, we discuss the limitation of our distributions by applying our distribution to the analysis of the BTP future and calculating the average waiting time. We find that our distribution is applicable as long as durations follow a Weibull law for short times and do not have too heavy a tail.
Type: article (author version)
Appears in Collections:情報科学院・情報科学研究院 (Graduate School of Information Science and Technology / Faculty of Information Science and Technology) > 雑誌発表論文等 (Peer-reviewed Journal Articles, etc)

Submitter: 井上 純一

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