Stochastic volatility and leverage effect

Abstract

We prove that a wide class of correlated stochastic volatility models exactly measure an empirical fact in which past returns are anticorrelated with future volatilities: the so-called ``leverage effect''. This quantitative measure allows us to fully estimate all parameters involved and it will entail a deeper study on correlated stochastic volatility models with practical applications on option pricing and risk management.

4 pages, 2 figures

References in corpus (2)

• The leverage effect in financial markets: retarded volatility and market panic
• A correlated stochastic volatility model measuring leverage and other stylized facts

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