Generalized weierstrass-mandelbrot function model for actual stocks markets indexes with nonlinear characteristics

L. Zhang, C. Yu, J. Q. Sun

Research output: Contribution to journalArticleResearchpeer-review

11 Citations (Scopus)

Abstract

It is difficult to simulate the dynamical behavior of actual financial markets indexes effectively, especially when they have nonlinear characteristics. So it is significant to propose a mathematical model with these characteristics. In this paper, we investigate a generalized Weierstrass-Mandelbrot function (WMF) model with two nonlinear characteristics: fractal dimension D where 2 > D > 1.5 and Hurst exponent (H) where 1 > H > 0.5 firstly. And then we study the dynamical behavior of H for WMF as D and the spectrum of the time series γ change in three-dimensional space, respectively. Because WMF and the actual stock market indexes have two common features: fractal behavior using fractal dimension and long memory effect by Hurst exponent, we study the relationship between WMF and the actual stock market indexes. We choose a random value of γ and fixed value of D for WMF to simulate the S and P 500 indexes at different time ranges. As shown in the simulation results of three-dimensional space, we find that γ is important in WMF model and different γ may have the same effect for the nonlinearity of WMF. Then we calculate the skewness and kurtosis of actual Daily S and P 500 index in different time ranges which can be used to choose the value of γ. Based on these results, we choose appropriate γ, D and initial value into WMF to simulate Daily S and P 500 indexes. Using the fit line method in two-dimensional space for the simulated values, we find that the generalized WMF model is effective for simulating different actual stock market indexes in different time ranges. It may be useful for understanding the dynamical behavior of many different financial markets.

Original languageEnglish
Article number1550006
Number of pages15
JournalFractals
Volume23
Issue number2
DOIs
Publication statusPublished - 1 Jun 2015
Externally publishedYes

Keywords

  • Financial Markets
  • Fractal
  • Hurst Exponent
  • Nonlinear Dynamics
  • Weierstrass-Mandelbrot Function

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