Title: Stochastic modeling of herd behavior indices
Authors: Guillaume, Florence
Linders, Daniƫl
Issue Date: 2014
Publisher: KU Leuven - Faculty of Economics and Business
Series Title: FEB Research Report AFI_1490 pages:1-24
Abstract: This paper proposes different diffusion processes to model herd behavior indices such as the Herd Behavior Index (HIX) or the comonotonicity index (CIX). These models arise by combining popular mean-reverting processes with simple algebraic functions mapping the definition domain of the underlying mean-reverting process to the unit interval. The such obtained Itˆo processes preserve, to some extent, the mean-reverting trend of the underlying process while satisfying the fundamental properties of the so-called herd behavior indices. In the numerical study, we calibrate the different model settings to time series data for a period spanning from January 2000 until October 2009 and investigate their ability to predict the future behavior of herd behavior indices.
Publication status: published
KU Leuven publication type: IR
Appears in Collections:Research Center Insurance, Leuven

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