Stochastic Multiplicative Processes for Financial Markets

Details Stochastic Multiplicative Processes for Financial Markets Stochastic Multiplicative Processes for Financial Markets

2001-10-12

arxiv.org/abs/cond-mat/0110273v1

Physica A 306 (2002) 412-422

Physics

Condensed Matter

Statistical Mechanics

12 pages, 6 figures, to be published in Physica A (Proceedings of Statphys21 conference)

Scientific paper

10.1016/S0378-4371(02)00519-8

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.

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