Characteristic function approach to the sum of stochastic variables

Figueiredo, Annibal and Gleria, Iram and Matsushita, Raul and Da Silva, Sergio (2006): Characteristic function approach to the sum of stochastic variables.

Abstract

This paper puts forward a technique based on the characteristic function to tackle the problem of the sum of stochastic variables. We consider independent processes whose reduced variables are identically distributed, including those that violate the conditions for the central limit theorem to hold. We also consider processes that are correlated and analyze the role of nonlinear autocorrelations in their convergence to a Gaussian. We demonstrate that nonidentity in independent processes is related to autocorrelations in nonindependent processes. We exemplify our approach with data from foreign exchange rates.

• Item Type: MPRA Paper
• Institution: Federal University of Santa Catarina
• Language: English
• Keywords: econophysics; central limit theorem; characteristic function; reduced variables; autocorrelation
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General