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A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices
Peter K. Clark
Abstract
S. Bochner's concept of a subordinate stochastic process is proposed as a model for speculative price series. A general class of finite-variance distributions for price changes is described, and a member of this class, the lognormal-normal, is tested against previously proposed distributions for speculative price differences. It is shown with both discrete Bayes' tests and Kolmogorov-Smirnov tests that finite-variance distributions subordinate to the normal fit cotton futures price data better than members of the stable family.
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