A CORRELATED STOCHASTIC VOLATILITY MODEL MEASURING LEVERAGE AND OTHER STYLIZED FACTS

Jaume Masoliver () and Josep Perelló
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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

International Journal of Theoretical and Applied Finance (IJTAF), 2002, vol. 05, issue 05, 541-562

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.

Keywords: Stochastic volatility; leverage; mean reversion; skewness; fat tails (search for similar items in EconPapers)
Date: 2002
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DOI: 10.1142/S0219024902001596

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