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Coupled continuous-time random walk approach to the Rachev–Rüschendorf model for financial data

Author

Listed:
  • Jurlewicz, Agnieszka
  • Wyłomańska, Agnieszka
  • Żebrowski, Piotr

Abstract

In this paper we expand the Rachev–Rüschendorf asset-pricing model introducing a coupled continuous-time-random-walk-(CTRW)-like form of the random number of price changes. Such a form results from the concept of the random clustering procedure (that resembles the coarse-graining methods of statistical physics) and, on the other hand, indicates applicability of the CTRW idea, widely used in physics to model anomalous diffusion, for describing financial markets. In the framework of the proposed model we derive the limiting distributions of log-returns and the corresponding pricing formulas for European call option. In order to illustrate the obtained theoretical results we present their fitting with several sets of financial data.

Suggested Citation

  • Jurlewicz, Agnieszka & Wyłomańska, Agnieszka & Żebrowski, Piotr, 2009. "Coupled continuous-time random walk approach to the Rachev–Rüschendorf model for financial data," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(4), pages 407-418.
    • Handle: RePEc:eee:phsmap:v:388:y:2009:i:4:p:407-418
    DOI: 10.1016/j.physa.2008.10.041
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