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Notions of Mathematical Finance Read chapter Read first chapter

2013 | OriginalPaper | Chapter

9. Stochastic Volatility Models

Authors : Norbert Hilber, Oleg Reichmann, Christoph Schwab, Christoph Winter

Published in: Computational Methods for Quantitative Finance

Publisher: Springer Berlin Heidelberg

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Abstract

In Sect. 4.​5, we considered local volatility models as an extension of the Black–Scholes model. These models replace the constant volatility by a deterministic volatility function, i.e. the volatility is a deterministic function of s and t. In stochastic volatility (SV) models, the volatility is modeled as a function of at least one additional stochastic process. Such models can explain some of the empirical properties of asset returns, such as volatility clustering and the leverage effect. These models can also account for long term smiles and skews.

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Metadata
Title
Stochastic Volatility Models
Authors
Norbert Hilber
Oleg Reichmann
Christoph Schwab
Christoph Winter
Copyright Year
2013
Publisher
Springer Berlin Heidelberg
Book
Computational Methods for Quantitative Finance

Print ISBN: 978-3-642-35400-7

Electronic ISBN: 978-3-642-35401-4

Copyright Year: 2013

DOI
https://doi.org/10.1007/978-3-642-35401-4_9

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