Random diffusion and leverage effect in financial markets

2002/02/12 by Josep Perelló, Josep Perello, Jaume Masoliver · 4 citations
Economics, Econometrics and Finance · Mathematics · Physics and Astronomy · #Brownian motion #Complex Systems and Time Series Analysis #Diffusion #Econometrics #Economics #Finance #Financial Risk and Volatility Modeling #Financial economics #Financial market #Leverage (statistics) #Leverage effect #Mathematics #Physics #Statistical physics #Statistics #Stochastic processes and financial applications #Thermodynamics #Volatility (finance) #cond-mat.stat-mech #physics.soc-ph #q-fin.ST

paper · pdf · doi:10.1103/physreve.67.037102

published as Physical Review E 67, 037102 (2003) · 4 pages, 2 figures

arxiv created 2002/02/12 · openalex publication_date 2003/03/25 · arxiv updated 2009/11/30 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/05

Abstract

We prove that Brownian market models with random diffusion coefficients provide an exact measure of the leverage effect [J-P. Bouchaud et al., Phys. Rev. Lett. 87, 228701 (2001)]. This empirical fact asserts that past returns are anticorrelated with future diffusion coefficient. Several models with random diffusion have been suggested but without a quantitative study of the leverage effect. Our analysis lets us to fully estimate all parameters involved and allows a deeper study of correlated random diffusion models that may have practical implications for many aspects of financial markets.

Citations

• Black–Scholes option pricing within Itô and Stratonovich conventions

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