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Normal Mixture Process

Author

Listed:
  • Saparya Suresh

    (Indian Institute of Management Kozhikode)

  • Malay Bhattacharya

    (Indian Institute of Management Bangalore)

Abstract

An interesting idea suggested in the existing literature states that any probability distribution pattern can be approximated to any precision by combining an arbitrary number of normal components. Motivated by the stated idea, we propose a new and simple, yet powerful stochastic process and discuss its construction from the microscopic movement of a particle in space. We call this new process Normal Mixture process. The intrinsic characteristics imbibed into the proposed process brings in several desirable properties making it a good candidate for modelling financial time series data like the stock price movements. In the paper, we have also illustrated how the proposed model gives a better fit compared to existing models through data analysis.

Suggested Citation

  • Saparya Suresh & Malay Bhattacharya, 2021. "Normal Mixture Process," Working papers 410, Indian Institute of Management Kozhikode.
    • Handle: RePEc:iik:wpaper:410
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