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A correlated stochastic volatility model measuring leverage and other stylized facts

Josep Perello·Jaume Masoliver
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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.

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Josep Perello, Jaume Masoliver. 2001-11-19. A correlated stochastic volatility model measuring leverage and other stylized facts. https://doi.org/10.1142/s0219024902001596

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