Role of Noise in a Market Model with Stochastic Volatility

Details Role of Noise in a Market Model with Stochastic Volatility Role of Noise in a Market Model with Stochastic Volatility

2005-10-06

arxiv.org/abs/cond-mat/0510154v3

Physics

Condensed Matter

Statistical Mechanics

13 pages, 6 figures, Eur. Phys. J. B, in press

Scientific paper

10.1140/epjb/e2006-00388-1

We study a generalization of the Heston model, which consists of two coupled stochastic differential equations, one for the stock price and the other one for the volatility. We consider a cubic nonlinearity in the first equation and a correlation between the two Wiener processes, which model the two white noise sources. This model can be useful to describe the market dynamics characterized by different regimes corresponding to normal and extreme days. We analyze the effect of the noise on the statistical properties of the escape time with reference to the noise enhanced stability (NES) phenomenon, that is the noise induced enhancement of the lifetime of a metastable state. We observe NES effect in our model with stochastic volatility. We investigate the role of the correlation between the two noise sources on the NES effect.

Affiliated with

Also associated with

No associations

Rating

Role of Noise in a Market Model with Stochastic Volatility does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Role of Noise in a Market Model with Stochastic Volatility, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Role of Noise in a Market Model with Stochastic Volatility will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-324682