2013/05/17 by Tao Ma, R. A. Serota · 3 citations
Economics, Econometrics and Finance · #q-fin.ST
paper · pdf · doi:10.1016/j.physa.2013.11.032
17 pages, 30 figures, 2 tables
arxiv created 2013/05/17 · arxiv updated 2015/06/16
We prove that Student's t-distribution provides one of the better fits to returns of S&P component stocks and the generalized inverse gamma distribution best fits VIX and VXO volatility data. We further argue that a more accurate measure of the volatility may be possible based on the fact that stock returns can be understood as the product distribution of the volatility and normal distributions. We find Brown noise in VIX and VXO time series and explain the mean and the variance of the relaxation times on approach to the steady-state distribution.