Financial Volatility and Independent Identically Distributed Variables

Annibal Figueiredo, University of Brasilia
Iram Gleria, Federal University of Alagoas
Raul Matsushita, University of Brasilia
Sergio Da Silva, Federal University of Rio Grande Do Sul

Abstract

Given that financial series are poorly described by Gaussian distributions, how can the volatility behavior of such series be explained? Here we put forward a possible explanation to add the existing ones. We focus on a class of reduced variables that are independent and identically distributed. These variables together with an extra exponential law are able to explain the volatility of the intraday Brazilian real-US dollar exchange rate for the year 2002.