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arXiv · 1610.04323

A Note on Jump Atlas Models

Clayton Barnes·Andrey Sarantsev
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Abstract

The market weight of a stock is its capitalization (cap) divided by the total market cap. Rank these weights from top to bottom. The capital distribution curve is a plot of weights versus ranks. For the US stock market, it is linear on a double logarithmic scale, and stable with respect to time (Fernholz, 2002). This property has been captured by models with rank-dependent dynamics: Each stock's cap logarithm is a Brownian motion with drift and diffusion coefficients depending on its current rank (Chatterjee, Pal, 2010). However, short-term stock movements have heavy tails. One can add jumps to Brownian motions to capture this. Observed time stability follows from a long-term stability result, stated and proved here. Via simulations, we find which properties of continuous models are preserved after adding jumps.

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Clayton Barnes, Andrey Sarantsev. 2016-10-14. A Note on Jump Atlas Models. https://arxiv.org/abs/1610.04323

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