Volatility is log-normal -- but not for the reason you think

TY - JOUR

T1 - Volatility is log-normal -- but not for the reason you think

AU - Tegnér, Martin

AU - Poulsen, Rolf

PY - 2018/6

Y1 - 2018/6

N2 - 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.

AB - 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.

U2 - 10.3390/risks6020046

DO - 10.3390/risks6020046

M3 - Journal article

SN - 2227-9091

VL - 6

JO - Risks

JF - Risks

IS - 2

M1 - 46

ER -