Normal Mixture Process

Suresh Saparya () and Bhattacharya Malay ()
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Suresh Saparya: Indian Institute of Management Kozhikode
Bhattacharya Malay: Indian Institute of Management Bangalore

No 410, Working papers from Indian Institute of Management Kozhikode

Abstract: An interesting idea suggested in the existing literature states that any probability distribution pattern can be approximated to any precision by combining an arbitrary number of normal components. Motivated by the stated idea, we propose a new and simple, yet powerful stochastic process and discuss its construction from the microscopic movement of a particle in space. We call this new process Normal Mixture process. The intrinsic characteristics imbibed into the proposed process brings in several desirable properties making it a good candidate for modelling financial time series data like the stock price movements. In the paper, we have also illustrated how the proposed model gives a better fit compared to existing models through data analysis.

Pages: 3 pages
Date: 2021-03
New Economics Papers: this item is included in nep-ecm
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