The price-volatility feedback rate: an implementable mathematical indicator
of market stability
Geometric analysis of iterated cross-volatilities of asset prices
is adopted to assess the stability of the (risk free) measure under
infinitesimal perturbations. Perturbations of asset prices evolve through
time according to an ordinary linear differential equation (hedged transfer).
The decay (feedback) rate is explicitly computed through a Fourier series
method which is implemented on high frequency time series.
by Emilio Barucci, Paul Malliavin, Maria Elvira Mancino, Roberto Renò and Anton Thalmaier
Mathematical Finance 13 (2003) 17-35
The paper is available here:
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