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Risks 2018, 6(2), 46;

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

Department of Engineering & Oxford-Man Institute of Quantitative Finance, University of Oxford, Oxford OX1 3PJ, UK
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
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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

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

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