English, Article, Journal or magazine article edition: Statistical modelling of financial crashes: Rapid growth, illusion of certainty and contagion Fry, J. M.

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Bookmark: http://trove.nla.gov.au/version/97233
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Statistical modelling of financial crashes: Rapid growth, illusion of certainty and contagion
Author
  • Fry, J. M.
Physical Description
  • preprint
Notes
  • We develop a rational expectations model of financial bubbles and study ways in which a generic risk-return interplay is incorporated into prices. We retain the interpretation of the leading Johansen-Ledoit-Sornette model, namely, that the price must rise prior to a crash in order to compensate a representative investor for the level of risk. This is accompanied, in our stochastic model, by an illusion of certainty as described by a decreasing volatility function. The basic model is then extended to incorporate multivariate bubbles and contagion, non-Gaussian models and models based on stochastic volatility. Only in a stochastic volatility model where the mean of the log-returns is fixed does volatility increase prior to a crash.
  • financial crashes; super-exponential growth; illusion of certainty; contagion
  • RePEc:pra:mprapa:16027
Language
  • English
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