By
Laurent Calvet, Professor, Chair in Finance - Tanaka Business School, Imperial College London, UK
Adlai Fisher, Faculty of Commerce, University of British Columbia, Vancouver, Canada
Description
Calvet and Fisher present a powerful, new technique for volatility forecasting that draws on insights from the use of multifractals in
the natural sciences and mathematics and provides a unified treatment of the use of multifractal techniques in finance. A large existing
literature (e.g., Engle, 1982; Rossi, 1995) models volatility as an average of past shocks, possibly with a noise component. This approach
often has difficulty capturing sharp discontinuities and large changes in financial volatility. Their research has shown the advantages
of modelling volatility as subject to abrupt regime changes of heterogeneous durations. Using the intuition that some economic phenomena
are long-lasting while others are more transient, they permit regimes to have varying degrees of persistence. By drawing on insights
from the use of multifractals in the natural sciences and mathematics, they show how to construct high-dimensional regime-switching models
that are easy to estimate, and substantially outperform some of the best traditional forecasting models such as GARCH. The goal of their
book is to popularize the approach by presenting these exciting new developments to a wider audience. They emphasize both theoretical
and empirical applications, beginning with a style that is easily accessible and intuitive in early chapters, and extending to the most
rigorous continuous-time and equilibrium pricing formulations in final chapters.
Included in series
Academic Press Advanced Finance
Audience:
Finance practitioners, academics, and students, and econometriciansSecondary readership: Mathematicians, statisticians, and natural scientists interested in fractals
