Integrated OU Processes and Non‐Gaussian OU‐based Stochastic Volatility Models

Ole E. Barndorff‐Nielsen and Neil Shephard ()
Authors registered in the RePEc Author Service: Ole E. Barndorff-Nielsen

Scandinavian Journal of Statistics, 2003, vol. 30, issue 2, 277-295

Abstract: Abstract. In this paper, we study the detailed distributional properties of integrated non‐Gaussian Ornstein–Uhlenbeck (intOU) processes. Both exact and approximate results are given. We emphasize the study of the tail behaviour of the intOU process. Our results have many potential applications in financial economics, as OU processes are used as models of instantaneous variance in stochastic volatility (SV) models. In this case, an intOU process can be regarded as a model of integrated variance. Hence, the tail behaviour of the intOU process will determine the tail behaviour of returns generated by SV models.

Date: 2003
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