Stochastic Theory of Foreign Exchange Market Dynamics

TL;DR

This paper develops a new stochastic model for foreign exchange market dynamics that accurately captures observed statistical and scaling behaviors, aligning with existing Levy distribution approaches.

Contribution

It introduces a novel stochastic theory that describes foreign exchange market behavior and demonstrates its consistency with the Levy distribution approach.

Findings

The new stochastic model matches empirical statistical dependencies.

The model reproduces observed scaling behaviors.

It aligns with the Levy distribution approach.

Abstract

A new stochastic theory of a foreign exchange markets dynamics is developed. As a result we have the new probability distribution which well describes statistical and scaling dependencies ''experimentally'' observed in foreign exchange markets in recent years. The developed dynamic theory is compared with well-known phenomenological Levy distribution approach which is widely applied to this problem. It is shown that the developed stochastic dynamics and phenomenological approach based on the Levy distribution give the same statistical and scaling dependencies.