English

Log-ergodicity: A New Concept for Modeling Financial Markets

Probability 2023-12-27 v3

Abstract

Although financial models violate ergodicity in general, observing the ergodic behavior in the markets is not rare. Policymakers and market participants control the market behavior in critical and emergency states, which leads to some degree of ergodicity as their actions are intentional. In this paper, we define a parametric operator that acts on the space of positive stochastic processes, transforming a class of positive stochastic processes into mean-ergodic processes. With this mechanism, we extract the data regarding the ergodic behavior hidden in the financial model, apply it to mathematical finance, and establish a novel method for pricing contingent claims. We provide some empirical examples and compare the results with existing ones to demonstrate the efficacy of this new approach.

Keywords

Cite

@article{arxiv.2211.15637,
  title  = {Log-ergodicity: A New Concept for Modeling Financial Markets},
  author = {Kiarash Firouzi and Mohammad Jelodari Mamaghani},
  journal= {arXiv preprint arXiv:2211.15637},
  year   = {2023}
}

Comments

This paper contains 33 pages, 5 figures, and 6 tables