Modeling stylized facts for financial time series

Details Modeling stylized facts for financial time series Modeling stylized facts for financial time series

2004-01-02

arxiv.org/abs/cond-mat/0401009v2

Physica A 344, 263-266 (2004)

Physics

Condensed Matter

Other Condensed Matter

Contribution to Proceedings of the Conference "Applications of Physics in Financial Analysis 4", Warsaw, 13-15 November, 2003.

Scientific paper

10.1016/j.physa.2004.06.129

Multivariate probability density functions of returns are constructed in order to model the empirical behavior of returns in a financial time series. They describe the well-established deviations from the Gaussian random walk, such as an approximate scaling and heavy tails of the return distributions, long-ranged volatility-volatility correlations (volatility clustering) and return-volatility correlations (leverage effect). The model is tested successfully to fit joint distributions of the 100+ years of daily price returns of the Dow Jones 30 Industrial Average.

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