Nonlinearity modeling

While linear relationships aim to explain observed phenomena in the simplest way possible, many complex physical phenomena cannot be explained using such models. A nonlinear relationship is defined as follows:

Even though nonlinear relationships may be complex, to fully understand and model them, we will take a look at the examples that are applied in the context of finance and in time-series models.

Examples of nonlinear models

Many nonlinear models have been proposed for academic and applied research to explain certain aspects of economic and financial data that are left unexplained by linear models. The literature on nonlinearity in finance is simply too broad and deep to be adequately explained...