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Systems with correlations in the variance: Generating power law tails in probability distributions

Podobnik, Boris and Ivanov, Plamen Ch. and Lee, Youngki and Chessa, Alessandro and Stanley, H. Eugene Systems with correlations in the variance: Generating power law tails in probability distributions. EPL (Europhysics Letters), 50 (6). pp. 711-717. ISSN 0295-5075 (2000)

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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.

Item Type: Article
Identification Number: 10.1209/epl/i2000-00540-7
Uncontrolled Keywords: Subject: Computational physics; Statistical physics and nonlinear systems - PACS: 02.50.Ey Stochastic processes; 05.40.Fb Random walks and Levy flights; 05.40.-a Fluctuation phenomena, random processes, noise, and Brownian motion
Subjects: Q Science > QC Physics
Research Area: Economics and Institutional Change
Depositing User: Ms T. Iannizzi
Date Deposited: 06 Nov 2013 11:44
Last Modified: 20 Nov 2013 09:00
URI: http://eprints.imtlucca.it/id/eprint/1875

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