Modelling price dynamics: A hybrid truncated Lévy Flight–GARCH approach

A. Constantinides and Savel’ev, S.E.

Physica A: Statistical Mechanics and its Applications, 2013, vol. 392, issue 9, 2072-2078

Abstract: ARCH and GARCH stochastic processes are widely used in finance and are generally accepted as good approximations when modelling the price dynamics with Gaussian conditional probability. It can be seen that certain aspects of the empirical data for asset price changes seems to more closely fit a Truncated Lévy Flight or GARCH model, but each with individual shortfalls. In this paper therefore, we combine the GARCH process with a conditional truncated Lévy distribution in order to build a hybrid model that most notably describes the price change and associated volatility probability density distributions and scaling behaviour over different time horizons.

Keywords: GARCH; Volatility; Price simulation; Lévy distribution (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378437113000174
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:392:y:2013:i:9:p:2072-2078

DOI: 10.1016/j.physa.2013.01.003

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Catherine Liu ().