Heavy-tail driven by memory

Details Heavy-tail driven by memory Heavy-tail driven by memory

2012-01-27

arxiv.org/abs/1201.5690v2

Economy

Quantitative Finance

Statistical Finance

This paper was withdrawn because of the change in authorship. The work is replaced by the new one with considerable improvemen

Scientific paper

We propose a stochastic process driven by memory effect with novel distributions including both exponential and leptokurtic heavy-tailed distributions. A class of distribution is analytically derived from the continuum limit of the discrete binary process with the renormalized auto-correlation and the closed form moment generating function is obtained, thus the cumulants are calculated and shown to be convergent. The other class of distributions are numerically investigated. The concoction of the two stochastic processes of the different signs of memory under regime switching mechanism does incarnate power-law decay behavior, which strongly implies that memory is the alternative origin of heavy-tail.

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