Financial modeling with heavy‐tailed stable distributions

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Abstract
The aim of this article was to give an accessible introduction to stable distributions for financial modeling. There is a real need to use better models for financial returns because the normal (or bell curve/Gaussian) model does not capture the large fluctuations seen in real assets. Stable laws are a class of heavy‐tailed probability distributions that can model large fluctuations and allow more general dependence structures. WIREs Comput Stat 2014, 6:45–55. doi: 10.1002/wics.1286This article is categorized under: Applications of Computational Statistics > Computational Finance Statistical and Graphical Methods of Data Analysis > Multivariate Analysis Statistical and Graphical Methods of Data Analysis > Robust Methods
Funding Information
  • Cornell University, Operations Research & Information Engineering (W911NF-12-1-0385)
  • Army Research Development and Engineering Command

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