Title: 13 Financial applications of stable distributions
Abstract: Financial asset returns are the cumulative outcome of a vast number of pieces of information and individual decisions arriving continuously in time. According to the Central Limit Theorem, if the sum of a large number of iid random variates has a limiting distribution after appropriate shifting and scaling, the limiting distribution must be a member of the stable class. It is therefore natural to assume that asset returns are at least approximately governed by a stable distribution if the accumulation is additive, or by a log-stable distribution if the accumulation is multiplicative. The Gaussian is the most familiar and tractable stable distribution, and therefore either it or the log-normal has routinely been postulated to govern asset returns. However, returns are often much more leptokurtic than is consistent with normality. This naturally leads one to consider also the non-Gaussian stable distributions as a model of financial returns.
Publication Year: 1996
Publication Date: 1996-01-01
Language: en
Type: book-chapter
Indexed In: ['crossref']
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Cited By Count: 271
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