Olkhov, Victor (2023): Theoretical Economics as Successive Approximations of Statistical Moments.
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Abstract
This paper studies the links between the descriptions of macroeconomic variables and statistical moments of market trade, price, and return. The randomness of market trade values and volumes during the averaging interval Δ results in the random properties of price and return. We describe how averages and volatilities of price and return depend on the averages, volatilities, and correlations of market trade values and volumes. The averages, volatilities, and correlations of market trade, price, and return can behave randomly during the long interval Δ2>>Δ. To describe their statistical properties during the long interval Δ2, we introduce the secondary averaging procedure of trade, price, and return. We explain why, in the coming years, predictions of marketbased probabilities of price and return will be limited by Gaussian distributions. We discuss the roots of the internal weakness of the commonly used hedging tool, ValueatRisk, that cannot be solved and remains the source of additional risks and losses. One should consider theoretical economics as a set of successive approximations, each of which describes the next array of the nth statistical moments of market trades, price, return, and macroeconomic variables, which are repeatedly averaged during the sequence of increasing time intervals.
Item Type:  MPRA Paper 

Original Title:  Theoretical Economics as Successive Approximations of Statistical Moments 
English Title:  Theoretical Economics as Successive Approximations of Statistical Moments 
Language:  English 
Keywords:  theoretical economics; average and volatility; price and return; marketbased probability 
Subjects:  C  Mathematical and Quantitative Methods > C0  General > C00  General E  Macroeconomics and Monetary Economics > E0  General > E00  General E  Macroeconomics and Monetary Economics > E1  General Aggregative Models > E17  Forecasting and Simulation: Models and Applications E  Macroeconomics and Monetary Economics > E3  Prices, Business Fluctuations, and Cycles > E37  Forecasting and Simulation: Models and Applications G  Financial Economics > G1  General Financial Markets > G12  Asset Pricing ; Trading Volume ; Bond Interest Rates G  Financial Economics > G1  General Financial Markets > G17  Financial Forecasting and Simulation 
Item ID:  120753 
Depositing User:  Victor Olkhov 
Date Deposited:  03 May 2024 06:43 
Last Modified:  03 May 2024 06:43 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/120753 
Available Versions of this Item

Economic Theory as Successive Approximations of Statistical Moments. (deposited 11 Oct 2023 07:02)
 Theoretical Economics as Successive Approximations of Statistical Moments. (deposited 03 May 2024 06:43) [Currently Displayed]