COMPUTATION OF VOLATILITY IN STOCHASTIC VOLATILITY MODELS WITH HIGH FREQUENCY DATA

Emilio Barucci () and Maria Elvira Mancino
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Emilio Barucci: Dipartimento di Matematica, Politecnico di Milano, Italy

International Journal of Theoretical and Applied Finance (IJTAF), 2010, vol. 13, issue 05, 767-787

Abstract: We consider general stochastic volatility models driven by continuous Brownian semimartingales, we show that the volatility of the variance and the leverage component (covariance between the asset price and the variance) can be reconstructed pathwise by exploiting Fourier analysis from the observation of the asset price. Specifying parametrically the asset price model we show that the method allows us to compute the parameters of the model. We provide a Monte Carlo experiment to recover the volatility and correlation parameters of the Heston model.

Keywords: Stochastic volatility; Fourier analysis; volatility of volatility; leverage component (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (7)

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DOI: 10.1142/S0219024910005991

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