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A new measure of risk using Fourier analysis

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  • Michael Grabinski
  • Galiya Klinkova

Abstract

We use Fourier analysis to access risk in financial products. With it we analyze price changes of e.g. stocks. Via Fourier analysis we scrutinize quantitatively whether the frequency of change is higher than a change in (conserved) company value would allow. If it is the case, it would be a clear indicator of speculation and with it risk. The entire methods or better its application is fairly new. However, there were severe flaws in previous attempts; making the results (not the method) doubtful. We corrected all these mistakes by e.g. using Fourier transformation instead of discrete Fourier analysis. Our analysis is reliable in the entire frequency band, even for fre-quency of 1/1d or higher if the prices are noted accordingly. For the stocks scrutinized we found that the price of stocks changes disproportionally within one week which clearly indicates spec-ulation. It would be an interesting extension to apply the method to crypto currencies as these currencies have no conserved value which makes normal considerations of volatility difficult.

Suggested Citation

  • Michael Grabinski & Galiya Klinkova, 2024. "A new measure of risk using Fourier analysis," Papers 2408.10279, arXiv.org.
    • Handle: RePEc:arx:papers:2408.10279
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    File URL: http://arxiv.org/pdf/2408.10279
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