7 Wavelet time—scale analysis of risk
7.1 Introduction
In this chapter we continue to simultaneously analyze the marginal distributions and the temporal dependence of investment returns, as in Chapter 6, but we do it in a time—scale frame of reference, instead of in a time—frequency frame of reference. Scale is proportional to the inverse of frequency: a ~ 1/ω.
Our basic model of analysis for the investment returns and foreign exchange rates is again the Fractional Brownian Motion (FBM) presented earlier in Chapter 4. In that chapter we discussed the analysis of stationary and of slowly varying nonsta-tionary financial time series. In this chapter we discuss the analysis of financial time series that contain numerous transient, nonstationary ...
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