Indeterminacy in foreign exchange markets

We discuss price variations distributions in foreign exchange markets, char acterizing them both in calendar and business time frameworks. The price dy namics is found to be the result of two distinct processes, a multi-varianc e diffusion and an error process. The presence of the latter, which dominat es at short time scales, leads to indeterminacy principle in finance. Furth ermore, dynamics does not allow for a scheme based on independent probabili ty distributions, since volatility exhibits a strong correlation even at th e shortest time scales. (C) 2000 Elsevier Science B.V. All rights reserved.