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Correlations in the bond-future market

journal contribution
posted on 2023-06-08, 18:27 authored by Giovanni Cuniberti, Marco Raberto, Enrico Scalas
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.

History

Publication status

  • Published

Journal

Physica A: Statistical Mechanics and its Applications

ISSN

0378-4371

Publisher

Elsevier

Issue

1

Volume

269

Page range

90-97

Department affiliated with

  • Mathematics Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2014-10-02

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