A correlated stochastic volatility model measuring leverage and other stylized facts

Abstract

We present a stochastic volatility market model where volatility is correlated with return and is represented by an Ornstein-Uhlenbeck process. With this model we exactly measure 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.

22 pages, 2 figures and 2 tables

References in corpus (1)

• The leverage effect in financial markets: retarded volatility and market panic

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