Arbeitspapier
Statistical modelling of financial crashes: Rapid growth, illusion of certainty and contagion
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 considered fixed does volatility increase prior to a crash.
- Language
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Englisch
- Bibliographic citation
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Series: EERI Research Paper Series ; No. 10/2009
- Classification
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Wirtschaft
Mathematical and Quantitative Methods: General
Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
General Financial Markets: General (includes Measurement and Data)
- Subject
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Financial crashes
super-exponential growth
illusion of certainty
contagion
housing-bubble
- Event
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Geistige Schöpfung
- (who)
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Fry, John M.
- Event
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Veröffentlichung
- (who)
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Economics and Econometrics Research Institute (EERI)
- (where)
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Brussels
- (when)
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2009
- Handle
- Last update
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10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Fry, John M.
- Economics and Econometrics Research Institute (EERI)
Time of origin
- 2009
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Certainty of punishmet.
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Certainty of punishmet.
On losing certainty
99 Crashes : prominente Unfallopfer
Change--The Third Certainty