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Statistical modelling across price and time scales: a quantitative approach to modern financial regulation

Project description

Improving financial regulation design

The dynamic nature of the global economy and market highlights how financial regulations frequently fall short in creating meaningful change and often overlook the underlying issues entirely. This underscores the necessity for enhanced strategies within financial institutions to facilitate the development and design of more effective regulations. The EU-funded STAQAMOF project aims to cultivate a quantitative approach that can contribute to the improvement of financial regulation design. To achieve this, the project will conduct research on various mathematical problems and models, ultimately generating statistical models capable of establishing connections between financial market microstructure and long-term price behaviour. Consequently, this endeavour will yield not only an expansion of mathematical knowledge but also an enhanced framework for financial regulations.

Objective

This project aims at providing a new quantitative approach to financial regulation, notably in the context of high frequency trading. The key idea of our method is to build relevant statistical models through price and time scales, connecting the microstructure of financial markets to the long term behavior of prices. Doing so, we will be able to understand and quantify the macroscopic consequences of regulatory measures modifying the microscopic design of the market. Succeeding in this modelling task will require to address several intricate statistical problems. In particular new results will be needed in the fields of limit theory for semi-martingales, multifractal processes, rough stochastic differential equations, Hawkes processes and high-dimensional statistics. Hence, through this project, we not only have the hope to provide groundbreaking tools for worldwide regulation of financial markets but, concurrently, to answer important and challenging mathematical problems. In term of analyzing concrete regulatory measures, particular attention will be devoted to the issue of the choice of a proper tick value, that is the minimal price increment allowed on a financial market. Indeed, the tick value is the tool which seems to be favored by most policy makers in order to regulate high frequency trading.

Host institution

ECOLE POLYTECHNIQUE
Net EU contribution
€ 1 165 625,00
Address
ROUTE DE SACLAY
91128 Palaiseau Cedex
France

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Region
Ile-de-France Ile-de-France Essonne
Activity type
Higher or Secondary Education Establishments
Links
Total cost
€ 1 165 625,00

Beneficiaries (2)