A Lognormal Type Stochastic Volatility Model With Quadratic Drift

@article{Carr2019ALT,
  title={A Lognormal Type Stochastic Volatility Model With Quadratic Drift},
  author={P. Carr and S. Willems},
  journal={Capital Markets: Asset Pricing & Valuation eJournal},
  year={2019}
}
  • P. Carr, S. Willems
  • Published 2019
  • Economics
  • Capital Markets: Asset Pricing & Valuation eJournal
  • This paper presents a novel one-factor stochastic volatility model where the instantaneous volatility of the asset log-return is a diffusion with a quadratic drift and a linear dispersion function. The instantaneous volatility mean reverts around a constant level, with a speed of mean reversion that is affine in the instantaneous volatility level. The steady-state distribution of the instantaneous volatility belongs to the class of Generalized Inverse Gaussian distributions. We show that the… CONTINUE READING
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