Stochastic Multiplicative Processes for Financial Markets
Statistical Mechanics
2009-11-07 v1 Statistical Finance
Abstract
We study a stochastic multiplicative system composed of finite asynchronous elements to describe the wealth evolution in financial markets. We find that the wealth fluctuations or returns of this system can be described by a walk with correlated step sizes obeying truncated Levy-like distribution, and the cross-correlation between relative updated wealths is the origin of the nontrivial properties of returns, including the power law distribution with exponent outside the stable Levy regime and the long-range persistence of volatility correlations.
Cite
@article{arxiv.cond-mat/0110273,
title = {Stochastic Multiplicative Processes for Financial Markets},
author = {Zhi-Feng Huang and Sorin Solomon},
journal= {arXiv preprint arXiv:cond-mat/0110273},
year = {2009}
}
Comments
12 pages, 6 figures, to be published in Physica A (Proceedings of Statphys21 conference)