Stochastic volatility effects on correlated log-normal random variables (Q1798473)
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English | Stochastic volatility effects on correlated log-normal random variables |
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Stochastic volatility effects on correlated log-normal random variables (English)
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23 October 2018
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Summary: The transition density function plays an important role in understanding and explaining the dynamics of the stochastic process. In this paper, we incorporate an ergodic process displaying fast moving fluctuation into constant volatility models to express volatility clustering over time. We obtain an analytic approximation of the transition density function under our stochastic process model. Using perturbation theory based on Lie-Trotter operator splitting method, we compute the leading-order term and the first-order correction term and then present the left and right skew scenarios through numerical study.
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stochastic volatility
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log-normal random variables
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clustering
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