RANDOM-WALK TYPE MODEL WITH FAT TAILS FOR FINANCIAL MARKETS

Hans-Geors Matuttis ()
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Hans-Geors Matuttis: Department of Mechanical Engineering and Intelligent Systems, University of Electro-Communications, Chofu, Tokyo 1-5-1, Japan

International Journal of Modern Physics C (IJMPC), 2008, vol. 19, issue 07, 1017-1026

Abstract: Starting from the random-walk model, practices of financial markets are included into the random-walk so that fat tail distributions like those in the high frequency data of the SP500 index are reproduced, though the individual mechanisms are modeled by normally distributed data. The incorporation of local correlation narrows the distribution for "frequent" events, whereas global correlations due to technical analysis leads to fat tails. Delay of market transactions in the trading process shifts the fat tail probabilities downwards. Such an inclusion of reactions to market fluctuations leads to mini-trends which are distributed with unit variance.

Keywords: Econo-physics; random-walk; fat tails; SP500 (search for similar items in EconPapers)
Date: 2008
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DOI: 10.1142/S0129183108012765

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