Abstract
A volatility model is developed for several time horizons, taking into account the distribution of the frequency of price fluctuations. The core of the model is the ability to identify and use the “carrier frequencies” of market prices to obtain a more accurate estimate of the current volatility. Our attention is focused on determining the structure of the market, taking into account the price dynamics and reflecting the presence of market agents operating on different time horizons. To evaluate the proposed model, we decided to compare the volatility estimates calculated for the S&P 500 index with the VIX index, which was chosen as the main objective indicator of market volatility. A comparison of the historical volatility, the multiplicative cascade model, and the proposed model shows the advantage of the latter in terms of the average absolute percentage error.
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Nikulin, E.E., Pekhterev, A.A. Turbulence on Financial Markets and a Model of a Multiplicative Cascade of Volatility. Math Models Comput Simul 13, 660–666 (2021). https://doi.org/10.1134/S2070048221040177
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DOI: https://doi.org/10.1134/S2070048221040177