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Stochastic Multiplicative Processes for Financial Markets

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  • Zhi-Feng Huang
  • Sorin Solomon

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 Levy-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 Levy regime and the long-range persistence of volatility correlations.

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  • Zhi-Feng Huang & Sorin Solomon, 2001. "Stochastic Multiplicative Processes for Financial Markets," Papers cond-mat/0110273, arXiv.org.
    • Handle: RePEc:arx:papers:cond-mat/0110273
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    Cited by:

    1. D. Sornette, 2014. "Physics and Financial Economics (1776-2014): Puzzles, Ising and Agent-Based models," Papers 1404.0243, arXiv.org.
    2. E. Samanidou & E. Zschischang & D. Stauffer & T. Lux, 2001. "Microscopic Models of Financial Markets," Papers cond-mat/0110354, arXiv.org.
    3. Didier SORNETTE, 2014. "Physics and Financial Economics (1776-2014): Puzzles, Ising and Agent-Based Models," Swiss Finance Institute Research Paper Series 14-25, Swiss Finance Institute.
    4. Ted Theodosopoulos & Alex Trifunovic, 2006. "Hybrid dynamics for currency modeling," Papers math/0605457, arXiv.org.
    5. E. Samanidou & E. Zschischang & D. Stauffer & T. Lux, 2007. "Agent-based Models of Financial Markets," Papers physics/0701140, arXiv.org.

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