Fractional Langevin model of memory in financial time series
- 6 March 2002
- journal article
- research article
- Published by American Physical Society (APS) in Physical Review E
- Vol. 65 (3) , 037106
- https://doi.org/10.1103/physreve.65.037106
Abstract
Financial time series are random with the absolute value of the price index fluctuations having an inverse power-law correlation. A dynamical model of this behavior is proposed using a fractional Langevin equation. The physical basis for this model is the divergence of the microscopic time scale to overlap with the macroscopic time scale: a condition that is not observed in classical statistical mechanics. This time-scale separation provides a mechanism for the market to adjust the volitility of the price index fluctuations.Keywords
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