A long-range memory stochastic model of the return in financial markets

V. Gontis, J. Ruseckas and A. Kononovicius

Papers from arXiv.org

Abstract: We present a nonlinear stochastic differential equation (SDE) which mimics the probability density function (PDF) of the return and the power spectrum of the absolute return in financial markets. Absolute return as a measure of market volatility is considered in the proposed model as a long-range memory stochastic variable. The SDE is obtained from the analogy with earlier proposed model of trading activity in the financial markets and generalized within the nonextensive statistical mechanics framework. The proposed stochastic model generates time series of the return with two power law statistics, i.e., the PDF and the power spectral density, reproducing the empirical data for the one minute trading return in the NYSE.

Date: 2009-01, Revised 2009-10
New Economics Papers: this item is included in nep-ets
References: View complete reference list from CitEc
Citations:

Published in Physica A 389 (2010) 100-106

Downloads: (external link)
http://arxiv.org/pdf/0901.0903 Latest version (application/pdf)

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:arx:papers:0901.0903

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().