New model predicts financial volatility with unprecedented accuracy and simplicity.
The study explores how different investment strategies affect financial volatility over time. By using a two-scale model, researchers found that this approach accurately captures long-term patterns in real data. They developed a method to estimate model parameters using the Generalized Method of Moments, which helps account for volatility clustering and other common features in financial time series. This simplified model provides a realistic framework for understanding and predicting fluctuations in financial markets.