A correlated stochastic volatility model measuring leverage and other stylized facts

Details A correlated stochastic volatility model measuring leverage and other stylized facts A correlated stochastic volatility model measuring leverage and other stylized facts

2001-11-19

arxiv.org/abs/cond-mat/0111334v1

International Journal of Theoretical and Applied Finance 5, 541-562 (2002)

Physics

Condensed Matter

22 pages, 2 figures and 2 tables

Scientific paper

10.1142/S0219024902001596

We present a stochastic volatility market model where volatility is correlated with return and is represented by an Ornstein-Uhlenbeck process. With this model we exactly measure 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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