Univariate and multivariate statisti

al aspe ts
of equity volatility
Salvatore Mi i he1;2 , Fabrizio Lillo1;2 , Giovanni Bonanno1;2 , and Rosario
N. Mantegna1;2
1
Istituto Nazionale per la Fisi a della Materia, Unita di Palermo, Fa olta di
Ingegneria, Viale delle S ienze, I-90128 Palermo, Italia
2
Dipartimento di Fisi a e Te nologie Relative, Universita di Palermo, Viale delle
S ienze, I-90128 Palermo, Italia

Abstra t. We dis uss univariate and multivariate statisti al properties of volatil-

ity time series of equities traded in a nan ial market. Spe i ally, (i) we introdu e
a two-region sto hasti volatility model able to well des ribe the un onditional pdf
of volatility in a wide range of values and (ii) we quantify the stability of the results
of a orrelation-based lustering pro edure applied to syn hronous time evolution
of a set of volatility time series.

1 Introdu tion

Volatility of nan ial time series is a key variable in the modelling of nan-
ial markets. It ontrols several risk measures asso iated with the dynami s
of pri e of a nan ial asset. It also ae ts the rational pri e of derivative prod-
u ts. In this paper we dis uss univariate and multivariate statisti al proper-
ties of volatility investigated re ently by our resear h group. Spe i ally, we
dis uss the probability density fun tion (pdf) of histori al volatility for 100
highly apitalized sto ks traded in the US equity markets. We rst brie y
re all the empiri al observation that widespread volatility models su h as the
Hull and White model [1℄ and the lognormal model fail in des ribing the
volatility pdf when one asks the un onditional pdf to des ribe both low and
high values of volatility [2℄. Starting from these observation we propose here
a two-region model of sto hasti volatility dynami s whi h is able to well
des ribe the un onditional pdf of volatility for any values of it.
In this paper we also dis uss multivariate properties of volatility time
series. The existen e of orrelation among pri e returns of dierent sto ks
traded in a nan ial market is a well-known fa t [3{5℄. Correlation based lus-
tering pro edures have been pioneered in the e onomi literature. Examples
are referen es [6,7℄. Re ently, a new orrelation based lustering pro edure
has been introdu ed in the e onophysi s literature. It has been shown that
this orrelation-based lustering pro edure and some variant of it are able
to lter out information whi h has a dire t e onomi interpretation from the
orrelation oeÆ ient matrix [8{12℄. A similar ltering pro edure has also be
performed on volatility time series [13℄. Here we dis uss the problem of the
2 Salvatore Mi i he et al.

stability asso iated with the Minimum Spanning Tree (MST) obtained both
from volatility data. This is done by using two dierent approa hes. One is
based on the stability of the time series of the degree (number of links of the
sto k in the MST) of ea h sto k [13℄ whereas the se ond one is based on the
dete tion of the frequen y of links onserved during the dynami s of orrela-
tion. This last approa h has been re ently proposed in Ref. [14℄. With both
approa hes, we verify that volatility MST are hara terized by a small but
not negligible level of stability over time intervals as long as several years.
The paper is organized as follows. In Se t. 2 we dis uss empiri al results
about the un onditional probability density fun tion of volatility time series.
In Se t. 3 we introdu e a new volatility model able to des ribe well the
un onditional pdf of volatility over aa wide volatility range. In Se tions 4
and 5 we omment on the stability of the MSTs of volatility time series of
set of sto ks simultaneously traded in a market. In Se t. 6 we brie y draw
our on lusions.

2 Empiri al Results

The volatility  of a nan ial asset is a statisti al quantity whi h needs to

be determined starting from market information [15℄. It is the standard de-
viation of asset return (or, almost equivalently, of logarithm pri e hanges
of the asset). Dierent methodologies are used to infer volatility estimation
from market data ranging from a dire t al ulation from past return data
(histori al volatility) to the omputation of the volatility implied in the de-
termination of an option pri e omputed using the Bla k and S holes formula
[16℄ or some variant of it. We dis uss here some results obtained by our group
in the investigation of the statisti al properties of volatility for the 100 most
apitalized sto ks traded in US equity markets during a 4 year time period.
The empiri al data were taken from the trade and quote (TAQ) database,
maintained by the New York Sto k Ex hange (NYSE). In parti ular, our
data over the whole period ranging from January 1995 to De ember 1998
(1011 trading days). This database ontains all transa tions o urred for ea h
sto k traded in the US equity markets. The apitalization onsidered is the
one re orded on August 31, 1998. For ea h sto k and for ea h trading day we
onsider the time series of sto k pri e re orded transa tion by transa tion.
Sin e transa tions for dierent sto ks do not happen simultaneously, we di-
vide ea h trading day (lasting 6h 300 ) into 12 intervals of 1950 se onds ea h. In
orresponden e to ea h interval, we dene 12 (intraday) sto k's pri es proxies
P (k) { with k = 1;


; 12 dened as the transa tion pri e dete ted nearest
to end of the interval (this is one possible way to deal with high-frequen y
nan ial data [17℄).
We hoose 12 intraday intervals sin e this value ensures that at least one
transa tion is in average observed in ea h interval for all onsidered sto ks
in the present study. For ea h sto k we an thus ompute a histori al daily
 Statisti al aspe ts of volatility 3
1
10
0
10

10
−1 (a)
P(σn)
−2
10
−3
10
−4
10
−5
10
1 0 2 4 6 8 10
10
0
10

10
−1 (b)
P(σn)

−2
10
−3
10
−4
10
−5
10
0 2 4 6 8 10
σn
Fig. 1. Best ts of the empiri al un onditional pdf of normalized volatility n
obtained by investigating 100 sto ks traded in US equity markets during the time
period January 1995 - De ember 1998. In both panels, the solid lines are the best
ts whereas the solid ir les are empiri al data. In panel (a) we show the best tting
obtained with the Hull and White pdf of Eq. (2) and in panel (b) we show the best
tting obtained with a lognormal pdf of mean value 0.97 and varian e equals to
0.19. In the ase of panel (a) the ttings parameters are 2a= 2 + 3 = 3:79 and
ba=2 = 0:91.

p
volatility as  (t) = 11 std[ln(P (k + 1)=P (k ))℄, where std[
℄ indi ates the
standard deviation of the argument of the fun tion. Hen e, for ea h sto k
we have 1011 values of daily volatility. These volatility data have then been
analyzed to ompute the volatility pdf for ea h sto k. The 100 empiri al pdfs
we obtain are then tted with the theoreti al pdfs of the onsidered models.
Due to the limited number of re ords used to estimate the empiri al pdfs
(1011 re ords per sto k) the results of our ttings are not able to indi ate
strengths and weaknesses of the two models. For this reason we res ale the
volatility value of ea h sto k  to its mean value <  > and we investigate
4 Salvatore Mi i he et al.

the pdf of the normalized variable n = = <  > for the ensemble of 100
sto ks. In this way we obtain an empiri al pdf whi h is quite a urate being
based on the re ording of 101,100 events.
In our study [2℄ we ompared our empiri al results with two widespread
models of volatility. The rst model is the Hull and White model [1℄. In this
model, the varian e rate v   2 is des ribed by the Ito's equation
dv = a (b v) dt + vdzv (1)
where a and b are parameters ontrolling the mean reverting nature of the
sto hasti pro ess,  is ontrolling its diusive aspe ts and zv is a Wiener
pro ess. The sto hasti pro ess is reverting at a level b at a rate a. The Hull
and White model has asso iated a stationary pdf of the volatility whi h has
the form

ba= 2 1+a= exp( ba= 2 2 )
2

P () = 2 (2)
(1 + a= 2 ) 2a=2 +3
This pdf has a power-law tail for large values of  . A power-law tail in the
empiri al volatility pdf has been observed in Ref. [18℄ for large values of the
volatility. Another model is the lognormal model of volatility [19,20℄. An Ito's
sto hasti dierential equation asso iated with a lognormal pdf is
d = a (b ln  ) dt +  1=2 dz (3)
where a, b and  are ontrol parameters of the model. The two models are
hara terized by quite dierent pdfs espe ially for large values of the volatility
where the Hull and White pdf shows a power-law behavior.
The best ttings of our empiri al pdf with Eq. (2) and with a lognormal
pdf are shown in Fig. 1. Panel (a) shows the best ts obtained with the Hull
and White pdf. In this ase the volatility low values are only approximately
well des ribed by the theoreti al pdf. Moreover, for large values of volatility,
the best t overestimates by approximately a fa tor two empiri al results.
By inspe ting panel (b) we note that the lognormal pdf des ribes very well
low values of volatility in the interval 0 < n  2 but ompletely fails in
des ribing large values n > 2. In parti ular a lognormal pdf underestimates
large values of volatility. Both the lognormal model and the Hull and White
models fail in des ribing well the normalized volatility over a relatively wide
range of volatility values (0 < n < 10). This implies that there is still room
for the improvement of volatility models down to the basi aspe t of well
des ribing the asymptoti pdf of volatility over a realisti ally wide range.

3 A Sto hasti Volatility two-region model

The empiri al studies presented so far put forward that volatility pdf is well
des ribed by a lognormal distribution for intermediate volatility values and
 Statisti al aspe ts of volatility 5
1
10

0
10

−1
10
P(σn)

−2
10

−3
10

−4
10

−5
10

σn
0 2 4 6 8 10

Fig. 2. Empiri al un onditional pdf of normalized volatility ompared with the pdf
predi ted by the sto hasti model of Eq. (4). Solid line represents the result of a
nonlinear best tting with the pdf of Eq. (5) whereas solid ir les are the empiri al
data. The tting parameters are L = 1:7,  = 4:78 and V2 = 2:78.

it is approximated by a power{law for large volatility values. Here we present

a two{region model whi h aptures both these features.
Let us onsider the following Ito's equation with additive noise:
d = h() dt + dz (4)
8
1
<  
> >L
h() =
: 2 V 1 (log  + V1 V
> 2) 0  L
2  2V 2
2

where , L, V1 and V2 are real onstants.

The orresponding Fokker{Plank equation admits as stationary solution
the following pdf
8
> 1
< N1   >L
P () = (5)
>
:
N2 e (log  m)2 =2s
0L
6 Salvatore Mi i he et al.

1 1 V1 V2
s= m=
2 V2 2 2 V22
The pdf of Eq. (5) is a lognormal pdf for low volatility values and a power-law
pdf for large volatility values. It is worth noting that the lognormal fun tion
of Eq. (5) is des ribed by the sto hasti dierential equation of Eq. (4), whi h
is is dierent from the one of Eq. (3). Lognormal pdfs an be des ribed both
by additive and multipli ative sto hasti dierential equations. In the two-
region model of Eq. (4) the des ription of volatility in terms of a multipli ative
sto hasti pro ess is more appropriate due to the form of the drift h( ) for
 > L. The two onstants N1 and N2 are real onstants that an be xed by
imposing that P ( ) is ontinuous and it is normalized to unity. The further
requirement that P ( ) has ontinuous rst derivative gives a relation between
V1 , V2 and L, whi h is
p
1++ (1 + )2 8V1 log L
V2 = (6)
4 log L
As a result the model is spe ied if the three parameters , L and V1 (or V2 )
are given. Parameter  ontrols the exponent of the power{law tail. Param-
eter V1 ontrols where the lognormal part of the pdf is lo ated, i.e. the value
of m. Parameter L ontrols the turning point between the power{law and
the lognormal regimes. Fig. (2) shows a omparison between empiri al data
(solid ir les) and the model of Eq. (4) (solid line). The solid line is obtained
with a nonlinear tting pro edure performed at su essive steps. We rst
t the empiri al pdf for large values of  with a power{law behavior. From
this tting we estimate the exponent of the power{law tail as  = 4:78. The
se ond step involves the lognormal region. By tting the pdf for low values
of  we obtain s = 0:18 and m = 0:31, whi h gives V2 = 2:78. By using Eq.
(6) we nally nd L = 1:7 As expe ted, the proposed model well reprodu es
the empiri al pdf for the entire interval of investigated volatility values. A
dire t omparison of Fig. 1 and Fig. 2 shows that the proposed two{region
model performs better than the models of Eqs (1) and (3) in des ribing the
un onditional pdf.
It is also worth noting that the present model presents a non-trivial persis-
tent form of the auto orrelation fun tion of volatility. This is due to the fa t
that a sto hasti volatility model with a drift h( ) whi h is inversely propor-
tional to volatility has asso iated a non exponential de aying auto orrelation
fun tion of the random volatility [21℄.

4 Correlation-based lustering of volatility

We investigate the statisti al properties of ross- orrelation among volatility

time series. In this multivariate investigation we use daily data. To over a
 Statisti al aspe ts of volatility 7

wide time period of the dynami s of orrelation-based lustering, we investi-

gate the 12 year time period ranging from January 1987 to April 1999 (3116
trading days). During this time period only 93 of the 100 sto ks onsidered in
Se tions 2 and 3 have been ontinuosly traded. For the present investigation,
to mantain our set of sto ks of onstant size we hoose to onsider here only
these 93 sto ks.
Starting from the daily pri e data Pi (t), we ompute the daily volatility
i (t) for ea h sto k i = 1;


; 93. Histori al volatility is omputed by using
the proxy i (t) = 2 [maxfPi (t)g minfPi (t)g℄=[maxfPi (t)g + minfPi (t)g℄
where maxfPi (t)g and minfPi (t)g are the highest and lowest pri e of the
day, respe tively.
The orrelation based lustering pro edure introdu ed in Ref. [8℄ is based
on the omputation of the subdominant ultrametri distan e [22℄ asso iated
with a metri distan e that one may obtain from the orrelation oeÆ ient.
The subdominant ultrametri distan e an be used to obtain a hierar hi al
tree and a MST. The sele tion of the subdominant ultrametri distan e for a
set of elements whose similarity measure is a metri distan e is equivalent to
onsidering the single linkage lustering pro edure [23℄. Further details about
this lustering pro edure an be found in [24℄.
In the present dis ussion, we wish to summarize the statisti al properties
of the MST asso iated to the orrelation oeÆ ient matrix of volatility time
series. It should be noted that there is an essential dieren e between pri e
return and volatility probability density fun tions. In fa t the probability
density fun tion of pri e return is an approximately symmetri al fun tion
whereas the volatility probability density fun tion is signi antly skewed. Bi-
variate variables whose marginals are very dierent from Gaussian fun tions
an have linear orrelation oeÆ ients whi h are bounded in a subinterval of
[ 1; 1℄ [25℄. Sin e the empiri al probability density fun tion of volatility is
very dierent from a Gaussian the use of a robust nonparametri orrelation
oeÆ ient ould more appropriate for quantifying volatility ross- orrelation.
Indeed our investigations show mixed results. The volatility MSTs obtained
starting from a Spearman rank-order orrelation oeÆ ient seems to be more
stable with respe t to the dynami s of the degree of sto ks than the ones ob-
tained starting from the linear (or Pearson's) orrelation oeÆ ient when we
onsider the auto orrelation fun tion of the degree time series of the investi-
gated sto ks. Conversely no signi ant dieren e is noted when we investigate
the survival ratio of tree edges [14℄. Due to spa e restri tions, in this paper
we only presents results obtained by omputing the Spearman nonparametri
orrelation oeÆ ient between pairs of time series.
The lustering pro edure based on the Spearman rank-order orrelation
oeÆ ient uses the volatility rank time series to evaluate the subdominant ul-
trametri distan e. The time series of the rank value of volatility are obtained
by substituting the volatility values with their ranks. Then one evaluates the
linear orrelation oeÆ ient between ea h pair of the rank time series [26℄
8 Salvatore Mi i he et al.

WY
ETR
AEP XRX
CHA CSC
HAL
SO IFF KM
SLB GTE
CHV BCC
ARC IP BEL MTC
OXY
S
AIT
MOB CPB BS
CL BAX
BC BDK MMM
FDX HNZ PRD UTX MER
XON DD
AA
TAN AVP MO BMY DOW
AXP PG
KO RAL
TEK BAC EK VO
GE DIS
NT MRK TOY
WFC JPM PEP HM
USB BA DAL
UCM
T MCD JNJ
CEN
ROK NSC NSM TXN IBM HON
ONE WMT AIG GM
WMB
CGP
BNI UIS HWP
FLR HRS F
LTD
MAY CI AGC MSFT
SUNW INTC

ORCL

Pajek

Fig. 3. Minimum spanning tree obtained by onsidering the volatility time series
of 93 mostly apitalized sto ks traded in the US equity market. Ea h sto k is
identied by its ti k symbol. The orresponden e with the ompany name an
be found in any web site of nan ial information. The volatility orrelation among
sto ks has been evaluated by using the Spearman rank-order orrelation oeÆ ient.
The MST has been drawn by using the Pajek pa kage for large network analysis
http://vlado.fmf.uni-lj.si/pub/networks/pajek/

and starting from this orrelation oeÆ ient matrix one obtains the asso-
iated MST. An example of the MST obtained starting from the volatility
time series and by using the Spearman rank-order orrelation oeÆ ient is
shown in Fig. (3). This MST is shown for illustrative purposes and it has been
omputed by using the widest window available in our database (T = 3116
trading days). A dire t inspe tion of the MST shows the existen e of well
hara terized lusters. Examples are the luster of te hnology sto ks (HON,
HWP, IBM, INTC, MSFT, NSM, ORCL, SUNW, TXN and UIS) and the
luster of energy sto ks (ARC, CHV, CPB, HAL, MOB, SLB, XON). Fig. (3)
also shows the existen e of sto ks that behave as referen e sto ks for a group
of other sto ks. Examples are GE (General Ele tri Co), JPM (JP Morgan
Chase & Co) and DD (Du Pont De Nemours Co.).
 Statisti al aspe ts of volatility 9

5 Stability of volatility MST

A natural question arises whether or not the stru ture of the MST depends
on the parti ular time period onsidered. This point has been onsidered
brie y in [10,11℄ and it has also been re ently addressed in [14,27℄. In the
present investigation we dis uss the time robustness of a volatility MST. The
dynami s of MST is investigated by onsidering the re ords of the time series
delimited by a sliding time window of length T days ranging from day t to day
t + T . For example, by using a time window with T = 117 we approximately
ompute 3000 MSTs in our sets of data. In ea h MST, ea h sto k has a
number of other sto ks that are linked to it. This number is usually referred
to as the degree of the sto k. By using the above pro edure, we obtain a daily
histori al time series of degree for ea h of the onsidered 93 sto ks. In the
following, we fo us our attention on (i) the analysis of su h degree time series
as proposed in Ref. [13℄ and (ii) the survival ratio of tree edges as proposed
in Ref. [14℄.
Ea h time series of the degree of ea h sto k has about 3000 re ords. This
number of re ords is not enough to dete t reliably the auto orrelation fun -
tion of the degree time series for ea h sto k. Hen e, in Ref. [13℄ we de ided
to investigate the properties of the degree time series obtained by joining all
the 93 degree time series of ea h sto k. This is done separately for ea h value
of the time window T . From the time series obtained as des ribed above we
ompute the auto orrelation fun tion.
In Fig. (4) we show the auto orrelation fun tion of the degree time series
obtained starting from the time evolution of the volatility MST. The volatil-
ity MSTs are obtained starting from the Spearman rank-order orrelation
oeÆ ient. By inspe ting Fig. (4) we note that the auto orrelation fun tion
presents two distin t regimes. The rst is observed for  < T , i.e. when the
time lag  is less then the size of the sliding window. In this regime the MSTs
obtained at dierent times t are partially overlapping. The overlapping of the
time windows is therefore re e ted in the approximate exponential de ay of
the auto orrelation fun tion. Conversely, when T >  no overlap is present
in the volatility time series used to ompute MSTs. Hen e the value of the
auto orrelation fun tion provides information about the time stability of the
MST in this regime. We note that at t  T the values of the auto orrelation
fun tion are approximately equals to 0:19, 0:21 and 0:22 for a time window
of T = 117, T = 227 and T = 357 trading days respe tively. These results
indi ate that the degree of the sto ks in the MSTs of volatility has a low but
not negligible level of time stability. In Ref. [13℄ we have shown that the time
stability of the MST omputed starting from sto k returns is higher than the
stability of the MST omputed from volatility time series.
In Fig. 5 we show the result of a dierent investigation of the time stabil-
ity of volatility MST. Spe i ally we show the time dynami s of the survival
ratio of tree edges. In our analysis we use the denition of the survival ratio
 introdu ed in Ref. [14℄. The survival ratio, i.e. the fra tion of edges found
10 Salvatore Mi i he et al.

Fig. 4. Auto orrelation fun tion of the degree of MSTs obtained starting from
volatility time series by using a orrelation based lustering based on the Spearman
rank-order orrelation oeÆ ient and the pro edure des ribed in the text. A dif-
ferent line-style indi ates a dierent value of the sliding time window. The values
of the time windows are T = 117 (dashed line), T = 227 (solid line) and T = 357
(dotted line) trading days. For ea h line, arrows indi ate the value od the time lag
orresponding to the time window T . They indi ate the point where MSTs start to
be omputed from non-overlapping time windows.

ommon in a pair of su essive graphs omputed at a time interval
t, is

obtained by onsidering the MSTs omputed ea h 250 trading days for time
windows T=117, and 227. Also in this investigation we are therefore onsid-
ering results obtained by onsidering non overlapping time series. From Fig.
5 we note that the survival ratio  systemati ally above 5% and its value
in reases for the larger value of T. It is also worth noting that Fig. 5 shows
a slow dynami s of the survival ratio over the years. This time evolution
probably re e ts a dynami s of sto k volatility ross- orrelation.

6 Dis ussion

Volatility time series of equities are hara terized by non trivial statisti-
al properties. The un onditional pdf an be des ribed by using a simple
 Statisti al aspe ts of volatility 11

0.2

0.15
ρ

0.1

0.05

T=117 trading days

T=227 trading days

0
0 1000 2000 3000
t (trading day)

Fig. 5. Survival ratio  of the volatility MST edges. Volatility MSTs are omputed
by using the Spearman orrelation oeÆ ient. The time interval
t between su -
essive MSTs is set to 250 trading days. The time window T is T = 117 ( ir les)
and T = 227 (squares). With this hoi e no overlap of the volatility time series
o urs during MSTs omputation.

two-region sto hasti model. This empiri al observation suggests to look for
sto hasti volatility models whi h an be hara terized in terms of a lognor-
mal pdf for small values of volatility and in terms of a power-law pdf for large
values ones. Our studies also show that a set of e onomi information an be
ltered out from volatility time series of sto ks simultaneously traded in a
nan ial market. This information is weak but statisti ally robust and might
play role in some pro edures asso iated with the estimation of nan ial risk
measures.

A knowledgements { The authors thank INFM and MIUR for nan ial
support. This work is part of the FIRB proje t RBNE01CW3M006.
12 Salvatore Mi i he et al.

Referen es

1. Hull, J.C., White, A. (1987) The pri ing of options on assets with sto hasti
volatilities. Journal of Finan e XLII 281-300.
2. Mi i he, S., Bonanno, G., Lillo, F., Mantegna, R.N. (2002) Volatility in Finan-
ial Markets: Sto hasti Models and Empiri al Results. Physi a A 314 756-761
3. Markowitz, H. (1959) Portfolio Sele tion: EÆ ient Diversi ation of Investment,
Wiley, NY
4. Elton, E.J., Gruber, M.J. (1995) Modern Portfolio Theory and Investment Anal-
ysis. Wiley, NY
5. Campbell, J.W., Lo, A.W., Ma Kinlay, A.C. (1997) The E onometri s of Finan-
ial Markets. Prin eton Univ. Press, Prin eton
6. Elton, E.J., Gruber, M.J. (1971) Improved fore asting through the design of
homogeneous groups. J. Business 44 432-450
7. Panton, D.B., Parker Lessig, V., Joy, O.M. (1976) Comovement of international
equity markets: A taxonomi approa h. J. Finan ial Quant. Anal. 11 415-432
8. Mantegna, R.N. (1999) Hierar hi al Stru ture in Finan ial Markets. Eur. Phys.
J. B 11 193-197
9. Kullmann, L., Kertesz, J., Mantegna, R.N. (2000) Identi ation of lusters of
ompanies in sto k indi es via Potts super-paramagneti transitions. Physi a A
287 412-419
10. Bonanno, G., Vandewalle, N., Mantegna, R.N. (2000) Taxonomy of Sto k Mar-
ket Indi es. Physi al Review E62 R7615-R7618
11. Bonanno, G., Lillo, F., Mantegna, R.N. (2001) High-frequen y Cross- orrelation
in a Set of Sto ks. Quantitative Finan e 1 96-104
12. Bonanno, G., Caldarelli, G., Lillo, F., Mantegna, R.N. (2003) Topology
of orrelation based minimal spanning trees in real and model markets.
http://xxx.lanl.gov/ ond-mat/0211546
13. Mi i he, S., Bonanno, G., Lillo, F., Mantegna, R.N. (2003) Degree stability of
a minimum spanning tree of pri e return and volatility, Physi a A (in press)
14. Onnela, J.-P., Chakraborti, A., Kaski, K., Kertesz, J. (2002) Dynami asset
trees and portfolio analysis. http://xxx.lanl.gov/ ond-mat/0208131 (2002).
15. Hull, J.C. (1997) Options, Futures and Other Derivatives. Prenti e Hall, In .
16. Bla k, F., S holes, M. (1973) The pri ing of options and orporate liabilities.
Journal of Politi al E onomy 81 637-654
17. Da orogna, M.M., Gen ay, R., Muller, U.A., Olsen, R.B., Pi tet, O.V. (2001)
An Introdu tion to High-Frequen y Finan e. A ademi Press
18. Liu, Y., Gopikrishnan, P., Cizeau, P., Meyer, M., Peng, C.-K., Stanley, H.E.,
(1999) Statisti al properties of the volatility of pri e u tuations. Phys. Rev. E
60 1390-1400
19. Cizeau, P., Liu, Y., Meyer, M., Peng, C.-K., Stanley, H.E. (1997) Volatility
distribution in the S&P500 sto k index. Physi a A 245 441-445
20. Pasquini, M., Serva, M. (1999) Multis aling and lustering of volatility. Physi a
A 269 140-147
21. Lillo, F., Mi i he, S., Mantegna, R.N. (2003) Long-range orrelated stationary
Markovian pro esses. http://xxx.lanl.gov/ ond-mat/0203442
22. Rammal, R., Toulouse, G., Virasoro, M.A. (1986) Ultrametri ity for physi ists.
Rev. Mod. Phys. 58 765-788
 Statisti al aspe ts of volatility 13

23. Mardia, K.V., Kent, J.T., Bibby, J.M. (1979) Multivariate Analysis. A ademi
Press, San Diego CA
24. Mantegna, R.N., Stanley, H.E. (2000) An Introdu tion to E onophysi s: Cor-
relations and Complexity in Finan e. Cambridge Univ. Press, Cambridge, UK
25. Embre hts, P., M Neil, A., Straumann, D. (2002) in Risk Management: Value
at Risk and Beyond, ed. M.A.H. Dempster, Cambridge University Press, Cam-
bridge, pp 176-223
26. Press, W.H., Teukolsky, S.A., Veterling, W.T., Flannery, B.P. (1992) Numeri-
al Re ipes in Fortran: the art of s ienti omputing. Cambridge Univ. Press,
Cambridge, UK, 2nd Ed.
27. Onnela, J.-P., Chakraborti, A., Kaski, K., Kertesz, J. (2002) Dynami asset
trees and Bla k Monday. http://xxx.lanl.gov/ ond-mat/0212037