Multi-scaling of moments in stochastic volatility models

P. Dai Pra and Paolo Pigato

Stochastic Processes and their Applications, 2015, vol. 125, issue 10, 3725-3747

Abstract: We introduce a class of stochastic volatility models (Xt)t≥0 for which the absolute moments of the increments exhibit anomalous scaling: E(∣Xt+h−Xt∣q) scales as hq/2 for qq∗, for some threshold q∗. This multi-scaling phenomenon is observed in time series of financial assets. If the dynamics of the volatility is given by a mean-reverting equation driven by a Levy subordinator and the characteristic measure of the Levy process has power law tails, then multi-scaling occurs if and only if the mean reversion is superlinear.

Keywords: Multi-scaling; Stochastic volatility; Heavy Tails (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (4)

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DOI: 10.1016/j.spa.2015.04.007

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