A New Method of Financial Risk Management Based on Multifractal

Abstract

The key point of financial risk management is whether the fluctuation characteristics of financial asset's price can be grasped and the turning point of market be forecasted or not. In this paper, the high-frequency Hang Seng index (HSI) in Hong Kong stock market was analyzed by multifractal. The correlation of the parameters of the multifractal spectra with the variation of stock index was studied statistically. We find that closing index fluctuations is related to a main parameter of multifractal spectrum of daily high frequency (per 5min) closing index of HSI Deltaf. A forecasting algorithm of stock index turning point based on Deltaf parameters of multifractal spectrum of the previous 3 day is proposed. According to the results of test, this algorithm's accuracy can reach up to 90.5%.