Combined multiplicative–Heston model for stochastic volatility

M. Dashti Moghaddam and R.A. Serota

Physica A: Statistical Mechanics and its Applications, 2021, vol. 561, issue C

Abstract: We consider a model of stochastic volatility which combines features of the multiplicative model for large volatilities and of the Heston model for small volatilities. The steady-state distribution in this model is a Beta Prime and is characterized by the power-law behavior at both large and small volatilities. We discuss the reasoning behind using this model as well as consequences for our recent analyses of distributions of stock returns and realized volatility.

Keywords: Volatility; Heston; Multiplicative; Beta Prime; Distribution tails (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:561:y:2021:i:c:s0378437120306671

DOI: 10.1016/j.physa.2020.125263

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