Fokker-Planck equation of distributions of financial returns and power laws
نویسنده
چکیده
Our purpose is to relate the Fokker-Planck formalism proposed by [Friedrich et al., Phys. Rev. Lett. 84, 5224 (2000)] for the distribution of stock market returns to the empirically well-established power law distribution with an exponent in the range 3− 5. We show how to use Friedrich et al.’s formalism to predict that the distribution of returns is indeed asymptotically a power law with an exponent μ that can be determined from the Kramers-Moyal coefficients determined by Friedrich et al. However, with their values determined for the U.S. dollar-German mark exchange rates, the exponent μ predicted from their theory is found around 12, in disagreement with the often-quoted value between 3 and 5. This could be explained by the fact that the large asymptotic value of 12 does not apply to real data that lie still far from the stationary state of the Fokker-Planck description. Another possibility is that power laws are inadequate. The mechanism for the power law is based on the presence of multiplicative noise across time-scales, which is different from the multiplicative noise at fixed time-scales implicit in the ARCH models developed in the Finance literature.
منابع مشابه
Numerical Studies and Simulation of the Lower Hybrid Waves Current Drive by using Fokker – Planck Equation in NSST and HT-7 Tokamaks
Recent experiments on the spherical tokamak have discovered the conditions to create a powerful plasma and ensure easy shaping and amplification of stability, high bootstrap current and confinement energy. The spherical tours (ST) fusion energy development path is complementary to the tokamak burning plasma experiment such as NSTX and higher toroidal beta regimes and improves the design of a po...
متن کامل1 A ug 2 00 1 Financial Market Dynamics
Distributions derived from non-extensive Tsallis statistics are closely connected with dynamics described by a nonlinear Fokker-Planck equation. The combination shows promise in describing stochastic processes with power-law distributions and superdiffusive dynamics. We investigate intra-day price changes in the S&P500 stock index within this framework by direct analysis and by simulation. We f...
متن کاملPseudo-spectral Matrix and Normalized Grunwald Approximation for Numerical Solution of Time Fractional Fokker-Planck Equation
This paper presents a new numerical method to solve time fractional Fokker-Planck equation. The space dimension is discretized to the Gauss-Lobatto points, then we apply pseudo-spectral successive integration matrix for this dimension. This approach shows that with less number of points, we can approximate the solution with more accuracy. The numerical results of the examples are displayed.
متن کاملNonlinear Fokker–Planck Equation in the Model of Asset Returns
The Fokker–Planck equation with diffusion coefficient quadratic in space variable, linear drift coefficient, and nonlocal nonlinearity term is considered in the framework of a model of analysis of asset returns at financial markets. For special cases of such a Fokker– Planck equation we describe a construction of exact solution of the Cauchy problem. In the general case, we construct the leadin...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
عنوان ژورنال:
دوره شماره
صفحات -
تاریخ انتشار 2000