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Stochastic volatility and leverage effect

Josep Perello, Jaume Masoliver

cond-mat.stat-mecharXiv:cond-mat/0202203

Abstract

We prove that a wide class of correlated stochastic volatility models exactly measure an empirical fact in which past returns are anticorrelated with future volatilities: the so-called ``leverage effect''. This quantitative measure allows us to fully estimate all parameters involved and it will entail a deeper study on correlated stochastic volatility models with practical applications on option pricing and risk management.

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