Stochastic volatility and leverage effect

Details Stochastic volatility and leverage effect Stochastic volatility and leverage effect

2002-02-12

arxiv.org/abs/cond-mat/0202203v1

Physical Review E 67, 037102 (2003)

Physics

Condensed Matter

Statistical Mechanics

4 pages, 2 figures

Scientific paper

10.1103/PhysRevE.67.037102

We prove that a wide class of correlated stochastic volatility models exactly measure an empirical fact in which past returns are anticorrelated with future volatilities: the so-called ``leverage effect''. This quantitative measure allows us to fully estimate all parameters involved and it will entail a deeper study on correlated stochastic volatility models with practical applications on option pricing and risk management.

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