Phys. Rev. E 67, 037102 (2003) [4 pages]Random diffusion and leverage effect in financial marketsReceived 11 February 2002; published 25 March 2003 We prove that Brownian market models with random diffusion coefficients provide an exact measure of the leverage effect [J-P. Bouchaud et al., Phys. Rev. Lett. 87, 228701 (2001)]. This empirical fact asserts that past returns are anticorrelated with future diffusion coefficient. Several models with random diffusion have been suggested but without a quantitative study of the leverage effect. Our analysis lets us to fully estimate all parameters involved and allows a deeper study of correlated random diffusion models that may have practical implications for many aspects of financial markets. © 2003 The American Physical Society URL:
http://link.aps.org/doi/10.1103/PhysRevE.67.037102
DOI:
10.1103/PhysRevE.67.037102
PACS:
89.65.Gh, 02.50.Le, 05.40.Jc, 05.45.Tp
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