Simulation of Historical Time Series Using MPRE, A Focus on Correlation in Squared Returns

Pantanella, Alexandre; Frezza, Massimiliano

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Simulation of Historical Time Series Using MPRE, A Focus on Correlation in Squared Returns

Proceedings of the International Conference on Mathematics, Business and Economics 2011 IASI ROMANIA

8 Pages Posted: 16 Jul 2011 Last revised: 20 Jul 2011

See all articles by Alexandre Pantanella

Massimiliano Frezza

affiliation not provided to SSRN

Date Written: July 15, 2011

Abstract

In this work, assuming as a model of price dynamic the Multifractional Processes with Random Exponent (MPRE), we analyze the behaviour of simulated time series in terms of autocorrelation. We show how, properly choosing the random exponent of MPRE, it is possible to capture the slow decay of autocorrelation of squared returns by preserving the absence of correlation in returns. The empirical analysis spotlights that a probable link between the previous two stylized facts and the fair behaviour of MPRE in their replication seems to be the continuity of the random exponent.

Keywords: Multifractional Process with Random Exponent, Financial Time Series, Simulation, Autocorrelation, Stylized Facts

JEL Classification: C22, C51

Suggested Citation: Suggested Citation

Pantanella, Alexandre and Frezza, Massimiliano, Simulation of Historical Time Series Using MPRE, A Focus on Correlation in Squared Returns (July 15, 2011). Proceedings of the International Conference on Mathematics, Business and Economics 2011 IASI ROMANIA, Available at SSRN: https://ssrn.com/abstract=1886396