Dynamics of the return distribution in the Korean financial market, Quantitative Finance Papers 01/2005;
Source: RePEc


In this paper, we studied the dynamics of the log-return distribution of the Korean Composition Stock Price Index (KOSPI) from 1992 to 2004. Based on the microscopic spin model, we found that while the index during the late 1990s showed a power-law distribution, the distribution in the early 2000s was exponential. This change in distribution shape was caused by the duration and velocity, among other parameters, of the information that flowed into the market.

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Available from: Jae-Suk Yang, Dec 14, 2014
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    12/2000; Cambridge University Press.
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    ABSTRACT: This paper reports several entirely new results on financial market dynamics and option pricing. We observe that empirical distributions of returns are much better approximated by an exponential distribution than by a Gaussian. This exponential distribution of asset prices can be used to develop a new pricing model for options (in closed algebraic form) that is shown to provide valuations that agree very well with those used by traders. We show how the Fokker–Planck formulation of fluctuations can be used with a local volatility (diffusion coefficient) to generate an exponential distribution for asset returns, and also how fat tails for extreme returns are generated dynamically by a simple generalization of our new volatility model. Nonuniqueness in deducing dynamics from empirical data is discussed and is shown to have no practical effect over time scales much less than one hundred years. We derive an option pricing pde and explain why it is superfluous, because all information required to price options in agreement with the delta-hedge is already included in the Green function of the Fokker–Planck equation for a special choice of parameters. Finally, we also show how to calculate put and call prices for a stretched exponential returns density.
    Physica A: Statistical Mechanics and its Applications 02/2003; 329(1-2-329):178-198. DOI:10.1016/S0378-4371(03)00589-2 · 1.73 Impact Factor
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    Physica A: Statistical Mechanics and its Applications 10/2001; 299(1-299):1-15. DOI:10.1016/S0378-4371(01)00351-X · 1.73 Impact Factor