Truncated Lévy walks and an emerging market economic index

L.Couto Miranda and R. Riera

Physica A: Statistical Mechanics and its Applications, 2001, vol. 297, issue 3, 509-520

Abstract: In this paper, we perform a statistical analysis of the major stock index in Latin America, the São Paulo Stock Exchange Index in Brazil (IBOVESPA). Database contains daily records for the 15-year period 1986–2000. We find that the time evolution of the index of share prices is well described by an Exponentially Truncated Lévy Flight (ETLF) characterized by a Lévy exponent α≃1.6–1.7 and a cutoff exponent λ≃1.7. The ETLF statistics accounts for the observed short-term large fluctuations of the financial data time series and describes the long-term convergence to the Gaussian regime. We derive the characteristic crossover time scale Nc dependence on α and λ according to this model as well as the volatility dependence on α, λ and Nc. We find an uncorrelated behaviour of the historical data and Nc≃20 trading days which are in numerical agreement with the analytical results. This dynamic model provides a framework within which it is possible to develop an efficient risk management and option pricing practice for emerging economies.

Keywords: Lévy; Econophysics (search for similar items in EconPapers)
Date: 2001
References: View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:297:y:2001:i:3:p:509-520

DOI: 10.1016/S0378-4371(01)00233-3

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