Title: Stochastic volatility of volatility in continuous time
Abstract: This paper introduces the concept of stochastic volatility of volatility in continuous time and, hence, extends standard stochastic volatility (SV) models to allow for an additional source of randomness associated with greater variability in the data. We discuss how stochastic volatility of volatility can be defined both non–parametrically, where we link it to the quadratic variation of the stochastic variance process, and parametrically, where we propose two new SV models which allow for stochastic volatility of volatility. In addition, we show that volatility of volatility can be estimated by a novel estimator called pre–estimated spot variance based realised variance.
Publication Year: 2009
Publication Date: 2009-07-06
Language: en
Type: preprint
Access and Citation
Cited By Count: 5
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot