Correlations in the bond-future market

Cuniberti, Giovanni, Raberto, Marco and Scalas, Enrico (1999) Correlations in the bond-future market. Physica A: Statistical Mechanics and its Applications, 269 (1). pp. 90-97. ISSN 0378-4371

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Abstract

We analyze the time series of overnight returns for the bund and btp futures exchanged at LIFFE (London). The overnight returns of both assets are mapped onto a one-dimensional symbolic-dynamics random walk: The `bond walk'. During the considered period (October 1991 - January 1994) the bund-future market opened earlier than the btp-future one. The crosscorrelations between the two bond walks, as well as estimates of the conditional probability, show that they are not independent; however each walk can be modeled by means of a trinomial probability distribution. Monte Carlo simulations confirm that it is necessary to take into account the bivariate dependence in order to properly reproduce the statistical properties of the real-world data. Various investment strategies have been devised to exploit the `prior' information obtained by the aforementioned analysis.

Item Type: Article
Schools and Departments: School of Mathematical and Physical Sciences > Mathematics
Subjects: Q Science > QA Mathematics > QA0276 Mathematical statistics
Depositing User: Enrico Scalas
Date Deposited: 02 Oct 2014 13:03
Last Modified: 02 Oct 2014 13:03
URI: http://sro.sussex.ac.uk/id/eprint/50308
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