Title :
Waiting time analysis of foreign currency exchange rates: Beyond the renewal-reward theorem
Author :
Sazuka, Naoya ; Inoue, Jun-ichi
Author_Institution :
Sony Corp., Tokyo
Abstract :
We evaluate the average waiting time between observing the price of financial markets and the next price change, especially in an on-line foreign exchange trading service for individual customers via the Internet. Basic technical idea of our present work is dependent on the so-called renewal-reward theorem. Assuming that stochastic processes of the market price changes could be regarded as a renewal process, we use the theorem to calculate the average waiting time of the process. In the conventional derivation of the theorem, it is apparently hard to evaluate the higher order moments of the waiting time. To overcome this type of difficulties, we attempt to derive the waiting time distribution Omega(s) directly for arbitrary time interval distribution (first passage time distribution) of the stochastic process PW(r) and observation time distribution PO (t) of customers. Our analysis enables us to evaluate not only the first moment (the average waiting time) but also any order of the higher moments of the waiting time. Moreover, in our formalism, it is possible to model the observation of the price on the internet by the customers in terms of the observation time distribution PW(t). We apply our analysis to the stochastic process of the on-line foreign exchange rate for individual customers from the Sony bank and compare the moments with the empirical data analysis
Keywords :
foreign exchange trading; stochastic processes; Internet; average waiting time; financial markets; foreign currency exchange rate; online foreign exchange trading service; renewal-reward theorem; stochastic process; waiting time analysis; Bonding; Data analysis; Exchange rates; Fluctuations; Intersymbol interference; Magnetosphere; Microscopy; Probability distribution; Stochastic processes; Temperature;
Conference_Titel :
Foundations of Computational Intelligence, 2007. FOCI 2007. IEEE Symposium on
Conference_Location :
Honolulu, HI
Print_ISBN :
1-4244-0703-6
DOI :
10.1109/FOCI.2007.371505