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Subordinated Market Index Models: A Comparison

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Author Info

  • SIMON HURST

    ()

  • ECKHARD PLATEN

    ()

  • SVETLOZAR RACHEV

    ()

Abstract

The paper compares various processes subordinated to the Wiener process to model the leptokurtic characteristics of index returns. Empirical analysis is performed on the Dow Jones and Nikkei 225 indexes. A good model to capture the typical tail behaviour of these indexes turns out to be a long Student t distributed one. Copyright Kluwer Academic Publishers 1997

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File URL: http://hdl.handle.net/10.1023/A:1009650313980
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Bibliographic Info

Article provided by Springer in its journal Asia-Pacific Financial Markets.

Volume (Year): 4 (1997)
Issue (Month): 2 (May)
Pages: 97-124

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Handle: RePEc:kap:apfinm:v:4:y:1997:i:2:p:97-124

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Web page: http://springerlink.metapress.com/link.asp?id=102851

Related research

Keywords: Asset price model; subordination; leptokurtic; Student t distribution; symmetric generalised hyperbolic distribution;

References

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  1. Benoit Mandelbrot, 1967. "The Variation of Some Other Speculative Prices," The Journal of Business, University of Chicago Press, vol. 40, pages 393.
  2. Clark, Peter K, 1973. "A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices," Econometrica, Econometric Society, vol. 41(1), pages 135-55, January.
  3. Hull, John C & White, Alan D, 1987. " The Pricing of Options on Assets with Stochastic Volatilities," Journal of Finance, American Finance Association, vol. 42(2), pages 281-300, June.
  4. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  5. Praetz, Peter D, 1972. "The Distribution of Share Price Changes," The Journal of Business, University of Chicago Press, vol. 45(1), pages 49-55, January.
  6. Blattberg, Robert C & Gonedes, Nicholas J, 1974. "A Comparison of the Stable and Student Distributions as Statistical Models for Stock Prices," The Journal of Business, University of Chicago Press, vol. 47(2), pages 244-80, April.
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Citations

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Cited by:
  1. Yoshio Miyahara & Alexander Novikov, 2001. "Geometric Lévy Process Pricing Model," Research Paper Series 66, Quantitative Finance Research Centre, University of Technology, Sydney.
  2. Grothe, Oliver & Schmidt, Rafael, 2010. "Scaling of Lévy–Student processes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(7), pages 1455-1463.
  3. Mercik, Szymon & Weron, Rafal, 2002. "Origins of scaling in FX markets," MPRA Paper 2294, University Library of Munich, Germany.
  4. Michele Leonardo Bianchi & Frank J. Fabozzi & Svetlozar T. Rachev, 2014. "Calibrating the Italian smile with time-varying volatility and heavy-tailed models," Temi di discussione (Economic working papers) 944, Bank of Italy, Economic Research and International Relations Area.
  5. De Giovanni, Domenico & Ortobelli, Sergio & Rachev, Svetlozar, 2008. "Delta hedging strategies comparison," European Journal of Operational Research, Elsevier, vol. 185(3), pages 1615-1631, March.
  6. Gao, Jiti, 2002. "Modeling long-range dependent Gaussian processes with application in continuous-time financial models," MPRA Paper 11973, University Library of Munich, Germany, revised 18 Sep 2003.
  7. Steven Kou, 2000. "A Jump Diffusion Model for Option Pricing with Three Properties: Leptokurtic Feature, Volatility Smile, and Analytical Tractability," Econometric Society World Congress 2000 Contributed Papers 0062, Econometric Society.

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