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Indeterminacy in foreign exchange markets

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  • Pasquini, Michele
  • Serva, Maurizio

Abstract

We discuss price variations distributions in foreign exchange markets, characterizing them both in calendar and business time frameworks. The price dynamics is found to be the result of two distinct processes, a multi-variance diffusion and an error process. The presence of the latter, which dominates at short time scales, leads to indeterminacy principle in finance. Furthermore, dynamics does not allow for a scheme based on independent probability distributions, since volatility exhibits a strong correlation even at the shortest time scales.

Suggested Citation

  • Pasquini, Michele & Serva, Maurizio, 2000. "Indeterminacy in foreign exchange markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 277(1), pages 228-238.
    • Handle: RePEc:eee:phsmap:v:277:y:2000:i:1:p:228-238
    DOI: 10.1016/S0378-4371(99)00589-0
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    References listed on IDEAS

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    Cited by:

    1. Berardi, Luca & Serva, Maurizio, 2005. "Time and foreign exchange markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 353(C), pages 403-412.

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