Next Article in Journal
The Cascade Bayesian Approach: Prior Transformation for a Controlled Integration of Internal Data, External Data and Scenarios
Previous Article in Journal
Estimating and Forecasting Conditional Risk Measures with Extreme Value Theory: A Review
Article Menu
Issue 2 (June) cover image

Export Article

Open AccessArticle
Risks 2018, 6(2), 46; https://doi.org/10.3390/risks6020046

Volatility Is Log-Normal—But Not for the Reason You Think

1
Department of Engineering & Oxford-Man Institute of Quantitative Finance, University of Oxford, Oxford OX1 3PJ, UK
2
Department of Mathematical Sciences, University of Copenhagen, 2100 København Ø, Denmark
*
Author to whom correspondence should be addressed.
Received: 16 February 2018 / Revised: 13 April 2018 / Accepted: 18 April 2018 / Published: 24 April 2018
Full-Text   |   PDF [1154 KB, uploaded 3 May 2018]   |  

Abstract

It is impossible to discriminate between the commonly used stochastic volatility models of Heston, log-normal, and 3-over-2 on the basis of exponentially weighted averages of daily returns—even though it appears so at first sight. However, with a 5-min sampling frequency, the models can be differentiated and empirical evidence overwhelmingly favours a fast mean-reverting log-normal model. View Full-Text
Keywords: volatility; estimation; Heston; log-normal; 3-over-2; fast mean-reversion volatility; estimation; Heston; log-normal; 3-over-2; fast mean-reversion
Figures

Figure 1

This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
SciFeed

Share & Cite This Article

MDPI and ACS Style

Tegnér, M.; Poulsen, R. Volatility Is Log-Normal—But Not for the Reason You Think. Risks 2018, 6, 46.

Show more citation formats Show less citations formats

Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Related Articles

Article Metrics

Article Access Statistics

1

Comments

[Return to top]
Risks EISSN 2227-9091 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
Back to Top