Time evolution of stochastic processes with correlations in the variance: stability in power-law tails of distributions (CROSBI ID 99378)
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Podaci o odgovornosti
Podobnik, Boris ; Matia Kaushik ; Chessa, Allesandro ; Ivanov, Plamen Ch. ; Lee, Youngki ; Stanley Eugene H.
engleski
Time evolution of stochastic processes with correlations in the variance: stability in power-law tails of distributions
We model the time series of the S&P500 index by a combined process, the AR+GARCH process, where AR denotes the autoregressive process which we use to account for the short-range correlations in the index changes and GARCH denotes the generalized autoregressive conditional heteroskedastic process which takes into account the long-range correlations in the variance. We study the AR+GARCH process with an initial distribution of truncated Lévy form. We find that this process generates a new probability distribution with a crossover from a Lévy stable power law to a power law with an exponent outside the Lévy range, beyond the truncation cutoff. We analyze the sum of n variables of the AR+GARCH process, and find that due to the correlations the AR+GARCH process generates a probability distribution which exhibits stable behavior in the tails for a broad range of values n— a feature which is observed in the probability distribution of the S&P500 index. We find that this power-law stability depends on the characteristic scale in the correlations. We also find that inclusion of short-range correlations through the AR process is needed to obtain convergence to a limiting Gaussian distribution for large n as observed in the data.
Random walks; Stochastic processes; Fluctuation phenomena; Central limit theory
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Podaci o izdanju
300 (1-2)
2001.
300-309-x
objavljeno
0378-4371