Ornstein-Uhlenbeck type processes with heavy distribution tails

DOI10.1137/S0040585X97986102MaRDI QIDQ2863587zbMATH OpenFDO

Authors G. Decrouez, K. Borovkov

Publication date 22 November 2013

Published in Theory of Probability and its Applications (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1102.5606

zbMATH Keywords

Ornstein-Uhlenbeck processfinancial dataheavy tailed distribution

Mathematics Subject Classification ID

Gaussian processes (60G15) Financial applications of other theories (91G80)

Abstract: We consider a transformed Ornstein-Uhlenbeck process model that can be a good candidate for modelling real-life processes characterized by a combination of time-reverting behaviour with heavy distribution tails. We begin with presenting the results of an exploratory statistical analysis of the log prices of a major Australian public company, demonstrating several key features typical of such time series. Motivated by these findings, we suggest a simple transformed Ornstein-Uhlenbeck process model and analyze its properties showing that the model is capable of replicating our empirical findings. We also discuss three different estimators for the drift coefficient in the underlying (unobservable) Ornstein-Uhlenbeck process which is the key descriptor of dependence in the process.

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• Skew Ornstein-Uhlenbeck processes and their financial applications
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