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http://ssrn.com/abstract=1373102
 
 

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Review of Discrete and Continuous Processes in Finance: Theory and Applications


Attilio Meucci


SYMMYS

July 1, 2009


Abstract:     
We review the main processes used to model financial variables. We emphasize the parallel between discrete-time processes, mainly used by econometricians for risk- and portfolio-management, and their continuous-time counterparts, mainly used by mathematicians to price derivatives. We highlight the relationship of such processes with the building blocks of stochastic dynamics and statistical inference, namely the invariants. Figures and practical examples support intuition. Fully documented code illustrating these processes in practice is available for download

Number of Pages in PDF File: 33

Keywords: invariants, random walk, Levy processes, autocorrelation, ARMA, Ornstein-Uhlenbeck, Heston, CIR, jumps, long memory, fractional integration, fractional Brownian motion, volatility clustering, GARCH, stochastic volatility, subordination, real measure, risk-neutral measure, fat tails

JEL Classification: C1, G11

working papers series





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Date posted: April 5, 2009 ; Last revised: December 6, 2010

Suggested Citation

Meucci, Attilio, Review of Discrete and Continuous Processes in Finance: Theory and Applications (July 1, 2009). Available at SSRN: http://ssrn.com/abstract=1373102 or http://dx.doi.org/10.2139/ssrn.1373102

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Attilio Meucci (Contact Author)
SYMMYS ( email )
HOME PAGE: http://www.symmys.com
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