Linearity in stochastic systems

Date of Publication

10-2017

Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Physics Minor in Finance

Subject Categories

Applied Mathematics

College

College of Science

Department/Unit

Physics

Thesis Adviser

Robert C. Roleda

Defense Panel Chair

Romeric F. Pobre

Defense Panel Member

Emmanuel T. Rodulfo
Gil Nonato C. Santos

Abstract/Summary

Financial markets are generally taken to be stochastic in nature and that future values cannot be predicted from historical values. A feature indicating statistical independence of two variables is that their correlation vanishes. This study looked into the autocorrelation between the value of a financial system at time t, with its value at another time t + T. An investigation of 18 corporations in the Philippine Stock Exchange, 18 corporations in the New York Stock Exchange, and 6 foreign exchange pairs showed that the autocorrelation t where averaging is over time t, does not vanish. Instead, it decreases linearly as a function of the interval T. As this linearity is surprising because it points to a degree of determinism in such stochastic systems, a deeper understanding of this feature is sought by delving into the conditions imposed by such a linearity on the probability density functions of the stochastic systems. Theoretical analysis indicated that the linearity is a characteristic of the Wiener processes. This lends additional credence to the use of Ito calculus in describing stochastic financial systems.

Abstract Format

html

Language

English

Format

Print

Accession Number

TU17288; CDTU017288

Shelf Location

Archives, The Learning Commons, 12F, Henry Sy Sr. Hall

Physical Description

v, 36 leaves : illustrations (some color) ; 28 cm

Keywords

Stochastic systems

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4-22-2026

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