Modeling the Influence of the Trinomial Uncertainty-Volatility-Risk on the Dynamics of Complex Financial-Economic Systems

Project type: PNCDI2 Idei 1863, 2008-2011

Amount: 1,000,000 RON (238,000 EUR)

Project team:

• Moisa Altar, PhD

• Judita Samuel, PhD

• Ciprian Necula, PhD

• Gabriel Bobeica , PhD stud.

• Elena Bojesteanu, PhD stud.

• Alina Grigore, PhD stud.

Abstract

The Project addresses a fundamental problem of economic sciences, namely identifying how uncertainty, volatility and risk act on the dynamics of complex financial-economic systems. The general objective of the project is enhancing knowledge concerning the propagation mechanisms of uncertainty, volatility and risk factors, as well as working out models, techniques and methods for quantifying these phenomena.

The project aims at obtaining new econometric models in order to improve the reliability of forecasts, the substantiation of decisions under uncertainty, both at micro and governmental level, as well as establishing hedging strategies against risk factors that can occur in the economic space. The originality and innovative aspects of the project are given by the fact that the problems of uncertainty, volatility and risk are tackled as a whole, not independently. The components of the trinomial uncertainty-volatility-risk are approached simultaneously. To achieve the objectives, we make use of instruments, methods and techniques developed within economic sciences, econometrics, mathematics, especially in the fields of stochastic calculus, complexity theory and econophysics.

The new concepts and techniques that will be developed within the Project will allow for a better modeling of the economic agents` behavior, for the evaluation of financial assets and derivatives and can be used for a more rigorous design of economic policies and more reliable economic forecasts, in an economic environment dominated by uncertainty, volatility and risk.

Completed objectives

2009

• Working out indicators and models for quantifying the volatilities of fundamental macroeconomic indicators

• Working out models for analyzing the influence of the volatility of macroeconomic environment on the process of economic growth

Papers

• Necula, C. (2009) "A Framework for Derivative Pricing in the Fractional Black-Scholes Market," Icfai Univ. Journal of Derivatives Markets 6(1): 6-15

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