Multi-scaling of moments in stochastic volatility models

DOI10.1016/J.SPA.2015.04.007zbMATH Open1338.60120arXiv1403.7387OpenAlexW1622808250MaRDI QIDQ492947FDOQ492947

Authors: Paolo Dai Pra, Paolo Pigato 

Publication date: 21 August 2015

Published in: Stochastic Processes and their Applications (Search for Journal in Brave)

Abstract: We introduce a class of stochastic volatility models $(X_t{)}_{tgeq0}$ for which the absolute moments of the increments exhibit anomalous scaling: $Eleft(|X_{t+h}-X_t{|}^{q}ight)$ scales as $h^{q/2}$ for $q<q^{\ast }$, but as $h^{A(q)}$ with $A(q)<q/2$ for $q>q^{\ast }$, for some threshold $q^{\ast }$. This multi-scaling phenomenon is observed in time series of financial assets. If the dynamics of the volatility is given by a mean-reverting equation driven by a Levy subordinator and the characteristic measure of the Levy process has power law tails, then multi-scaling occurs if and only if the mean reversion is superlinear.

Full work available at URL: https://arxiv.org/abs/1403.7387

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zbMATH Keywords

heavy tailsstochastic volatility modelscontinuous-time martingalemulti-scalingLévy process

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Statistical methods; risk measures (91G70) Martingales with continuous parameter (60G44) Financial applications of other theories (91G80)

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Cited In (5)

• Scaling and multiscaling in financial series: a simple model
• Title not available (Why is that?)
• Title not available (Why is that?)
• Multiple time scales and the exponential Ornstein–Uhlenbeck stochastic volatility model
• The asymptotic smile of a multiscaling stochastic volatility model

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