Volatility fingerprints of large shocks: Endogeneous versus exogeneous

D. Sornette; Y. Malevergne; J. F. Muzy

Home/Archive/arXiv

arXiv · cond-mat/0204626

Volatility fingerprints of large shocks: Endogeneous versus exogeneous

D. Sornette·Y. Malevergne·J. F. Muzy

View original source ↗Read source document ↗Export metadata ↓

Abstract

Finance is about how the continuous stream of news gets incorporated into prices. But not all news have the same impact. Can one distinguish the effects of the Sept. 11, 2001 attack or of the coup against Gorbachev on Aug., 19, 1991 from financial crashes such as Oct. 1987 as well as smaller volatility bursts? Using a parsimonious autoregressive process with long-range memory defined on the logarithm of the volatility, we predict strikingly different response functions of the price volatility to great external shocks compared to what we term endogeneous shocks, i.e., which result from the cooperative accumulation of many small shocks. These predictions are remarkably well-confirmed empirically on a hierarchy of volatility shocks. Our theory allows us to classify two classes of events (endogeneous and exogeneous) with specific signatures and characteristic precursors for the endogeneous class. It also explains the origin of endogeneous shocks as the coherent accumulations of tiny bad news, and thus unify all previous explanations of large crashes including Oct. 1987.

Explore related subjects

cond-mat.stat-mech q-fin.ST

Keep this discovery

Explore connections, maps & timelines

BibTeX RIS

D. Sornette, Y. Malevergne, J. F. Muzy. 2002-04-30. Volatility fingerprints of large shocks: Endogeneous versus exogeneous. https://arxiv.org/abs/cond-mat/0204626

Cite the original work for its findings. Save a collection to share your selection of sources.

KEEP EXPLORING

Related papers

arXiv2026

Nonuniform asymmetric exclusion process: Stationary densities and domain walls

We compute the stationary densities in totally asymmetric exclusion processes (TASEP) with open boundary conditions and spatially nonuniform hopping rates. The stationary densities in the low and and high density phases can be discontinuous, only when the space-dependent hopping rate is spatially discontinuous. In contrast, the stationary density profile in the maximal current phase can be discontinuous, even when the space-dependent hopping rate is continuous. We further investigate the domain walls, which are delocalised with complex shapes. In striking contrast to a delocalised domain wall (DDW) in an open, uniform TASEP, these DDWs can also form at the transitions between the low or high density phases and maximal current phase, and can cover the entire TASEP channel or a part of it, depending upon the specific forms of the site-dependence of the hopping rates and the associated phase transitions. We calculate their envelopes, which are curved lines, revealing their dependence on the spatial nonuniformity of the hopping rates. The phase diagrams in the plane of the control parameters show universal topology. The associated phase transitions are explored, which can be different from their counterparts in an open uniform TASEP.

cond-mat.stat-mech↗

arXiv2026

Intermittency in Wind-Driven Fires

We construct a wind-driven forest-fire model in one dimension in which a fire can jump gaps between trees to ignite disjoint downwind forests. The size of a gap that a fire can jump depends on the fire intensity, which increases as the fire propagates through trees and diminishes as the fire jumps gaps. Trees grow on empty sites at rate $r$ and lightning strikes each site with rate $f$. When $f\ll r/L$, where $L$ is the system length, lightning is sufficiently rare that quasi-deterministic dynamics arises where all trees are consumed when a lightning-induced fire occurs. For $f\gg L^{-μ}$ with $μ\approx 0.8$, lightning is sufficiently frequent that a steady state is reached, but with unexpected behaviors for the forest- and gap-size distributions. Intermittency arises in between these regimes, with coexisting temporal domains of deterministic and chaotic dynamics.

cond-mat.stat-mech↗

arXiv2026

Uphill and downhill first passage of an active Brownian particle: Asymmetry and exact path reweighting

First passage processes in active systems combine stochastic transport with self-propulsion and orientational persistence, making motion along and against an external bias sensitive to the internal active dynamics. For passive biased diffusion, opposite exits can have different splitting probabilities while their conditional first passage time distributions remain identical. We study how this relation changes for an active Brownian particle driven by a constant external force between two absorbing boundaries. Self-propulsion breaks the equality of the uphill and downhill first passage time distributions and modifies the splitting probabilities. Nevertheless, the two directional path ensembles remain exactly related by spatial reflection, which pairs downhill and uphill first passage paths of the same duration while preserving their orientational history. The log-ratio of the probabilities of a path and its reflected partner defines a path-dependent asymmetry functional and provides an exact reweighting between the two ensembles. In the symmetric half-weighted representation, the uphill and downhill first passage time distributions coincide for arbitrary orientational persistence. The same path relation also allows rare uphill statistics to be reconstructed from the more frequently sampled downhill trajectories. Numerical simulations confirm the weighted equality across the explored bias and persistence regimes, while perturbative and asymptotic analyses clarify how orientational persistence produces the directional asymmetry of the unweighted statistics. The exact relation between the two directional path ensembles suggests that similar symmetry-based reconstruction protocols may be found in other nonequilibrium first-passage problems.

cond-mat.stat-mech↗