A non-Gaussian stock price model: Options, credit and a multi-timescale memory

Abstract

We review a recently proposed model of stock prices, based on a statistical feedback model that results in a non-Gaussian distribution of price changes. Applications to option pricing and the pricing of debt is discussed. A generalization to account for feedback effects over multiple timescales is also presented. This model reproduces most of the stylized facts (ie statistical anomalies) observed in real financial markets.