Multiple Time Scales and the Exponential Ornstein-Uhlenbeck Stochastic Volatility Model

Download or read book Multiple Time Scales and the Exponential Ornstein-Uhlenbeck Stochastic Volatility Model written by Jaume Masoliver and published by . This book was released on 2005 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the exponential Ornstein-Uhlenbeck stochastic volatility model and observe that the model shows a multiscale behavior in the volatility autocorrelation. It also exhibits a leverage correlation and a probability profile for the stationary volatility which are consistent with market observations. All these features make the model quite appealing since it appears to be more complete than other stochastic volatility models also based on a two-dimensional diffusion. We finally present an approximate solution for the return probability density designed to capture the kurtosis and skewness effects.