Exponentially damped Lévy flights
Since real processes seem to departure from standard Lévy distributions, modifications to the latter have been suggested in literature. These include (abruptly) truncated (Phys. Rev. Lett. 73 (1994) 2946), smoothly truncated (Phys. Rev. E 52 (1995) 1197; Phys. Lett. A 266 (2000) 282) and gradually truncated Lévy flights (Physica A 268 (1999) 231; Physica A 275 (2000) 531). We put forward what we call an exponentially damped Lévy flight which encompasses the previous cases. In the presence of increasing and positive feedbacks, our distribution is assumed to deviate from the Lévy in both a smooth and gradual fashion. We estimate the truncation parameters by nonlinear least squares to optimally fit the distribution tails. That is a novel approach for estimating parameters α and γ of the Lévy. The method is illustrated with daily data on exchange rates for 15 countries against the US dollar. Our results show that the exponentially damped Lévy flight fits the data well when increasing and positive deviations are present.
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Volume (Year): 326 (2003)
Issue (Month): 3 ()
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- Figueiredo, Annibal & Gleria, Iram & Matsushita, Raul & Da Silva, Sergio, 2003.
"Autocorrelation as a source of truncated Lévy flights in foreign exchange rates,"
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Elsevier, vol. 323(C), pages 601-625.
- Sergio Da Silva, 2004. "Autocorrelation as a Source of Truncated Levy Flights in Foreign Exchange Rates," Finance 0405018, EconWPA.
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