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Theory of earthquakes interevent times applied to financial markets

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  • Jagielski, Maciej
  • Kutner, Ryszard
  • Sornette, Didier

Abstract

We analyze the probability density function (PDF) of waiting times between financial loss exceedances. The empirical PDFs are fitted with the self-excited Hawkes conditional Poisson process with a long power law memory kernel. The Hawkes process is the simplest extension of the Poisson process that takes into account how past events influence the occurrence of future events. By analyzing the empirical data for 15 different financial assets, we show that the formalism of the Hawkes process used for earthquakes can successfully model the PDF of interevent times between successive market losses.

Suggested Citation

  • Jagielski, Maciej & Kutner, Ryszard & Sornette, Didier, 2017. "Theory of earthquakes interevent times applied to financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 483(C), pages 68-73.
    • Handle: RePEc:eee:phsmap:v:483:y:2017:i:c:p:68-73
    DOI: 10.1016/j.physa.2017.04.115
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    References listed on IDEAS

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    1. Gresnigt, Francine & Kole, Erik & Franses, Philip Hans, 2015. "Interpreting financial market crashes as earthquakes: A new Early Warning System for medium term crashes," Journal of Banking & Finance, Elsevier, vol. 56(C), pages 123-139.
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    Cited by:

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    3. Li, Zhongping & Cui, Lirong & Chen, Jianhui, 2018. "Traffic accident modelling via self-exciting point processes," Reliability Engineering and System Safety, Elsevier, vol. 180(C), pages 312-320.

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