Multi-scaling of moments in stochastic volatility models

DOI10.1016/J.SPA.2015.04.007MaRDI QIDQ492947zbMATH OpenOpenAlexFDO

Authors Paolo Dai Pra, Paolo Pigato

Publication date 21 August 2015

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

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

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)

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.

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Cited in

(5)

• Scaling and multiscaling in financial series: a simple model
• scientific article; zbMATH DE number 5299701 (Why is no real title available?)
• scientific article; zbMATH DE number 7409459 (Why is no real title available?)
• Multiple time scales and the exponential Ornstein–Uhlenbeck stochastic volatility model
• The asymptotic smile of a multiscaling stochastic volatility model

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