Physics – Condensed Matter – Statistical Mechanics
Scientific paper
1997-05-09
Scale Invariance and Beyond (proceedings of the CNRS Workshop on Scale Invariance, Les Houches, March 1997)
Physics
Condensed Matter
Statistical Mechanics
Lecture given at Les Houches Workshop on Scale Invariance (March 1997). Plain TEX file, macros included. 11 pages, including 7
Scientific paper
The concepts of scale invariance, self-similarity and scaling have been fruitfully applied to the study of price fluctuations in financial markets. After a brief review of the properties of stable Levy distributions and their applications to market data we indicate the shortcomings of such models and describe the truncated Levy flight as an alternative model for price movements. Furthermore, studying the dependence structure of the price increments shows that while their autocorrelation function decreases rapidly to zero, the correlation of their squares and absolute values shows a slow power law decay, indicating persistence in the scale of fluctuations, a property which can be related to the anomalous scaling of the kurtosis. In the last section we review, in the light of these empirical facts, recent attempts to draw analogies between scaling in financial markets and in turbulent flows.
Bouchaud Jean-Philippe
Cont Rama
Potters Marc
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