Stochastic modelling of herd behaviour indices |
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Authors: | Florence Guillaume Daniël Linders |
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Affiliation: | 1. Department of Mathematics and Computer Sciences, University of Antwerp, Middelheimlaan 1, B-2020Antwerpen, Belgium.florence.guillaume@uantwerpen.be;3. Department of Accountancy, Finance and Insurance, KU Leuven, Naamsestraat 69, B-3000Leuven, Belgium. |
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Abstract: | This paper proposes different diffusion processes to model herd behaviour indices such as the Herd Behaviour Index (HIX). These models arise by combining popular mean-reverting processes with simple algebraic functions mapping the definition domain of the underlying mean-reverting process to the unit interval. The so obtained Itô processes preserve, to some extent, the mean-reverting trend of the underlying process while satisfying the fundamental properties of the so-called herd behaviour indices. In a numerical study, we calibrate the different model settings to time series data for a period spanning from January 2000 until October 2009 and investigate their ability to predict the future behaviour of herd behaviour indices. |
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Keywords: | Herd behaviour modelling Time-dependent diffusion processes Mean-reverting processes Comonotonicity |
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