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A Correlated Stochastic Volatility Model Measuring Leverage And Other Stylized Facts

Author

Listed:
  • JAUME MASOLIVER

    (Departament de Física Fonamental. Universitat de Barcelona, Diagonal, 647, E-08028 Barcelona, Spain)

  • JOSEP PERELLÓ

    (Departament de Física Fonamental. Universitat de Barcelona, Diagonal, 647, E-08028 Barcelona, Spain)

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.

Suggested Citation

  • Jaume Masoliver & Josep Perelló, 2002. "A Correlated Stochastic Volatility Model Measuring Leverage And Other Stylized Facts," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 5(05), pages 541-562.
    • Handle: RePEc:wsi:ijtafx:v:05:y:2002:i:05:n:s0219024902001596
    DOI: 10.1142/S0219024902001596
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    Citations

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    Cited by:

    1. Valeriy Gavrishchaka & Supriya Banerjee, 2006. "Support Vector Machine as an Efficient Framework for Stock Market Volatility Forecasting," Computational Management Science, Springer, vol. 3(2), pages 147-160, April.
    2. Zhiyuan Liu & M. Dashti Moghaddam & R. A. Serota, 2017. "Distributions of Historic Market Data - Stock Returns," Papers 1711.11003, arXiv.org, revised Dec 2017.
    3. M. Dashti Moghaddam & Zhiyuan Liu & R. A. Serota, 2019. "Distributions of Historic Market Data -- Relaxation and Correlations," Papers 1907.05348, arXiv.org, revised Feb 2020.
    4. Eisler, Z. & Kertész, J., 2004. "Multifractal model of asset returns with leverage effect," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 343(C), pages 603-622.
    5. Benoit Pochard & Jean-Philippe Bouchaud, 2003. "Option pricing and hedging with minimum expected shortfall," Science & Finance (CFM) working paper archive 500029, Science & Finance, Capital Fund Management.
    6. Giacomo Bormetti & Valentina Cazzola & Danilo Delpini, 2009. "Option pricing under Ornstein-Uhlenbeck stochastic volatility: a linear model," Papers 0905.1882, arXiv.org, revised May 2010.
    7. Zoltan Eisler & Janos Kertesz, 2004. "Multifractal model of asset returns with leverage effect," Papers cond-mat/0403767, arXiv.org, revised May 2004.
    8. Buchbinder, G.L. & Chistilin, K.M., 2007. "Multiple time scales and the empirical models for stochastic volatility," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 379(1), pages 168-178.

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