Articlegreen2002

A CORRELATED STOCHASTIC VOLATILITY MODEL MEASURING LEVERAGE AND OTHER STYLIZED FACTS

46 citations0/0 files storedInternational Journal of Theoretical and Applied Finance

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Stochastic processes and financial applications Financial Risk and Volatility Modeling Complex Systems and Time Series Analysis

Abstract

We analyze a stochastic volatility market model in which volatility is correlated with return and is represented by an Ornstein-Uhlenbeck process. In the framework of this model we exactly calculate the leverage effect and other stylized facts, such as mean reversion, leptokurtosis and negative skewness. We also obtain a close analytical expression for the characteristic function and study the heavy tails of the probability distribution.

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References

1986Generalized autoregressive conditional heteroskedasticity 1982Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation 1987The Pricing of Options on Assets with Stochastic Volatilities 2001Empirical properties of asset returns: stylized facts and statistical issues 1995Scaling behaviour in the dynamics of an economic index 1991Stock Price Distributions with Stochastic Volatility: An Analytic Approach 2000Asymmetric Volatility and Risk in Equity Markets 19965 Stochastic volatility

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2009First-passage and risk evaluation under stochastic volatility 2008Option pricing under stochastic volatility: the exponential Ornstein–Uhlenbeck model 2004A comparison between several correlated stochastic volatility models 2014A Path Integral Way to Option Pricing

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