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Stochastic multiplicative processes for financial markets

Author

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  • Huang, Zhi-Feng
  • Solomon, Sorin

Abstract

We study a stochastic multiplicative system composed of finite asynchronous elements to describe the wealth evolution in financial markets. We find that the wealth fluctuations or returns of this system can be described by a walk with correlated step sizes obeying truncated Lévy-like distribution, and the cross-correlation between relative updated wealths is the origin of the nontrivial properties of returns, including the power-law distribution with exponent outside the stable Lévy regime and the long-range persistence of volatility correlations.

Suggested Citation

  • Huang, Zhi-Feng & Solomon, Sorin, 2002. "Stochastic multiplicative processes for financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 306(C), pages 412-422.
  • Handle: RePEc:eee:phsmap:v:306:y:2002:i:c:p:412-422
    DOI: 10.1016/S0378-4371(02)00519-8
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    Cited by:

    1. E. Samanidou & E. Zschischang & D. Stauffer & T. Lux, 2007. "Agent-based Models of Financial Markets," Papers physics/0701140, arXiv.org.
    2. D. Sornette, 2014. "Physics and Financial Economics (1776-2014): Puzzles, Ising and Agent-Based models," Papers 1404.0243, arXiv.org.
    3. E. Samanidou & E. Zschischang & D. Stauffer & T. Lux, 2001. "Microscopic Models of Financial Markets," Papers cond-mat/0110354, arXiv.org.

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