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Stochastic volatility and leverage effect

Josep Perello·Jaume Masoliver
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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.

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Josep Perello, Jaume Masoliver. 2002-02-12. Stochastic volatility and leverage effect. https://doi.org/10.1103/physreve.67.037102

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