Numerical Methods for Stable Modeling in Financial Risk Management

Stoyan Stoyanov and Borjana Racheva-Jotova ()
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Stoyan Stoyanov: Sofia University, Bulgaria, Faculty of Economics and Business
Borjana Racheva-Jotova: Sofia University, Bulgaria, Faculty of Economics and Business

Chapter 8 in Handbook of Computational and Numerical Methods in Finance, 2004, pp 299-329 from Springer

Abstract: Abstract The seminal work of Mandelbrot and Fama, carried out in the 1960s, suggested the class of α-stable laws as a probabilistic model of financial assets returns. Stable distributions possess several properties which make plausible their application in the field of finance — heavy tails, excess kurtosis, domains of attraction. Unfortunately working with stable laws is very much obstructed by the lack of closed-form expressions for probability density functions and cumulative distribution functions. In the current paper we review statistical and numerical techniques which make feasible the application of stable laws in practice.

Keywords: Fast Fourier Transform; Stable Parameter; Stable Modeling; Stable Distribution; Financial Time Series (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1007/978-0-8176-8180-7_8

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