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Generalized Hyperbolic Diffusion Processes with Applications in Finance
Author(s) -
Rydberg Tina Hviid
Publication year - 1999
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/1467-9965.00067
Subject(s) - stylized fact , diffusion , diffusion process , ergodic theory , economics , financial market , econometrics , stock market , stock (firearms) , mathematics , financial economics , statistical physics , finance , mathematical analysis , physics , geology , economy , geography , macroeconomics , thermodynamics , service (business) , paleontology , archaeology , horse
A special class of diffusion processes, the generalized hyperbolic diffusion processes, is introduced. As a byproduct we present a technique for the construction of one‐dimensional ergodic diffusion processes with a predetermined stationary density. We specifically study the application of this new type of diffusion process to financial data, especially U.S. stock prices. It is seen that in addition to confirming stylized features of the financial market, a key explanation concerning “thick‐”tailed log returns is provided.