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# Levy walk and Fluctuations in Finance - PowerPoint PPT Presentation

Levy walk and Fluctuations in Finance. Change in asset price : behaves like a random walk (PhD thesis, L. Bachelier, 1900). It’s a Levy distribution ! Mandelbrot, 1963. Levy distribution has fat tails ! ( Sometimes markets do crash !! )

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Presentation Transcript

Change in asset price :

behaves like a random walk (PhD thesis, L. Bachelier, 1900).

It’s a Levy distribution !

Mandelbrot, 1963

( Sometimes markets do crash !! )

Self similar with respect to sampling time windowT . 

(ie, whether data is collected every

five minutes or every month).

Log PDF vs logX

Gaussian

ie, correlation time very short

(Hence Markovian , like random walk ! )

Otherwise you could predict the market

and easily become millionaire.

Mass Transport and DiffusionRandom Walk  Diffusion( a slow process <x2> = 2Dt )Diffusion can be enhanced or slowed down by flows or potentials. Tracers in turbulent flows. <x2> ~ t 3 (Richardson’s law)

drawing: Leonardo da Vinci,1500

(a non-equilibrium problem)

The famous Kramers formula (1940)

Application: rate of chemical reactions, lifetime of weak bonds

Transport inside a cell (size ~ 10 m)

Random walkers transport cargo through highways !!

The cell has network of filaments (microtubules) along which the

the motor proteins (random walkers) move with their cargo.

But unbiased random

walk cannot generate

directed movement.

Need help from

potentials V(x,t)