Theory of earthquakes interevent times applied to financial markets

• Published in: Physica A Vol. 483; pp. 68 - 73
• Main Authors: Jagielski, Maciej, Kutner, Ryszard, Sornette, Didier
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.10.2017
• Subjects: Financial markets; Interevent times; Self-excited Hawkes conditional Poisson process; Interevent times; Self-excited Hawkes conditional Poisson process; Financial markets
• ISSN: 0378-4371; 1873-2119
• DOI: 10.1016/j.physa.2017.04.115

We analyze the probability density function (PDF) of waiting times between financial loss exceedances. The empirical PDFs are fitted with the self-excited Hawkes conditional Poisson process with a long power law memory kernel. The Hawkes process is the simplest extension of the Poisson process that takes into account how past events influence the occurrence of future events. By analyzing the empirical data for 15 different financial assets, we show that the formalism of the Hawkes process used for earthquakes can successfully model the PDF of interevent times between successive market losses. •We analyze the PDFs of interevent times between exceedance losses in 15 time series.•The PDFs are fitted with the self-excited Hawkes conditional Poisson process.•We use the Hawkes process with a power law memory kernel.•Our calibration shows the strong non-Markovian nature of loss exceedances.