Title

Financial Market Dynamics

Keywords

Econophysics; Finance; Nonextensive statistics; Stochastic processes

Abstract

A necessary precondition for modeling financial markets is a complete understanding of their statistics, including dynamics. Distributions derived from nonextensive 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. We find that the power-law tails of the distributions, and the index's anomalously diffusing dynamics, are very accurately described by this approach. Our results show good agreement between market data and Fokker-Planck dynamics. This approach may be applicable in any anomalously diffusing system in which the correlations in time can be accounted for by an Ito-Langevin process with a simple time-dependent diffusion coefficient. © 2002 Elsevier Science B.V. All rights reserved.

Publication Date

3-15-2003

Publication Title

Physica A: Statistical Mechanics and its Applications

Volume

320

Number of Pages

525-534

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1016/S0378-4371(02)01558-3

Socpus ID

0037445395 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/0037445395

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