1999/10/31 by Boris Podobnik, Plamen Ch. Ivanov, Youngki Lee +3 · 1 citation
Economics, Econometrics and Finance · Physics and Astronomy · #Complex Systems and Time Series Analysis #Financial Risk and Volatility Modeling #Statistical Mechanics and Entropy #cond-mat.stat-mech #q-fin.ST
paper · pdf · doi:10.1209/epl/i2000-00540-7
7 pages, five figures. To appear in Europhysics Letters (2000)
arxiv created 2000/05/08 · openalex publication_date 2000/06/15 · arxiv updated 2009/11/30 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/04
We study how the presence of correlations in physical variables contributes to the form of probability distributions. We investigate a process with correlations in the variance generated by i) a Gaussian or ii) a truncated Lévy distribution. For both i) and ii), we find that due to the correlations in the variance, the process “dynamically” generates power law tails in the distributions, whose exponents can be controlled through the way the correlations in the variance are introduced. For ii), we find that the process can extend a truncated distribution beyond the truncation cutoff , which leads to a crossover between a Lévy stable power law and the present “dynamically generated” power law. We show that the process can explain the crossover behavior recently observed in the S&P500 stock index.