Heavy-Tailed Hawkes Processes Shape Market Volatility

Heavy-Tailed Hawkes Processes Shape Market Volatility
New research examines how heavy-tailed Hawkes processes converge and influence market microstructure, particularly in understanding rough volatility patterns. The study reveals that these mathematical models better capture extreme price movements and clustering effects observed in financial markets. Understanding these processes is crucial for risk management, derivative pricing, and developing more accurate models of how market volatility behaves at short time scales. The findings suggest that traditional volatility models may underestimate the frequency and magnitude of sudden market shocks, making this research valuable for traders and risk managers seeking to improve their forecasting accuracy.