Serving the Quantitative Finance Community

 
TheCorpFinanceQuant
Topic Author
Posts: 4
Joined: May 16th, 2019, 8:52 pm

Random Walk - Market Invariants

May 27th, 2019, 7:23 pm

Reading through Atillio Meucci's questions for his Risk and Asset Allocation book. One of the questions 

Q3.1.1 - Generate a Merton jump-diffusion process Xat discrete times with arbitrary parameters. What are the invariants in this process?

Any ideas on what these invariants would be?
 
User avatar
Alan
Posts: 2957
Joined: December 19th, 2001, 4:01 am
Location: California
Contact:

Re: Random Walk - Market Invariants

May 27th, 2019, 9:49 pm

A brief google suggests his "invariants" just mean (a set of) IID variates. In that model, as in every exponential Levy process, the log-returns over (disjoint) fixed intervals are IID variates. So the answer is likely any set: [$]\{\log P(t_i)/P(t_{i-j})\}[$], with [$]P(t_i)[$] the model prices, and [$]j[$] some fixed integer. (Again, non-overlapping entries). The terminology seems idiosyncratic. I avoided using your [$]X_t[$] because I don't know if those are prices or log-prices.