We show that the dynamics of stock prices can be accurately described as a continuous time random walk with a time dependent diffusion coefficient. The time evolution of the diffusion coefficient can be derived from tick by tick databases provided the stock price is characterized in terms of a couple of values describing the best ask and the best bid. We are then led to a finding and, namely, that the transition rate of the random walk process is different from the frequency of transactions. Our results allow us to obtain a fast and reliable determination of the diffusion coefficient and precisely confirm that fat tails in the distribution of price variations are due to volatility fluctuations
Dynamics of stock prices
Bartiromo R
2004
Abstract
We show that the dynamics of stock prices can be accurately described as a continuous time random walk with a time dependent diffusion coefficient. The time evolution of the diffusion coefficient can be derived from tick by tick databases provided the stock price is characterized in terms of a couple of values describing the best ask and the best bid. We are then led to a finding and, namely, that the transition rate of the random walk process is different from the frequency of transactions. Our results allow us to obtain a fast and reliable determination of the diffusion coefficient and precisely confirm that fat tails in the distribution of price variations are due to volatility fluctuationsI documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
