Stochastic volatility is the unpredictable nature of asset price volatility over time. It's a flexible alternative to the Black Scholes' constant volatility assumption.

The traditional approach to stochastic volatility (SV) modelling begins with the specification of an SV process, typically on the grounds of its analytical tractability (see, for example, Heston, 1993 ...

Stochastic volatility models have revolutionised the field of option pricing by allowing the volatility of an asset to vary randomly over time rather than remain constant. These models have ...

A stochastic volatility model where volatility was driven solely by a latent variable called news was estimated for three stock indices. A Markov chain Monte Carlo algorithm was used for estimating ...

Peter Friz, Paolo Pigato and Jonathan Seibel propose a modification of a given stochastic volatility model ‘backbone’ capable of producing extreme short-dated implied skews, without adding jumps or ...

Spot prices in energy markets exhibit special features, such as price spikes, mean reversion, stochastic volatility, inverse leverage effect, and dependencies between the commodities. In this paper a ...

This article empirically compares the Markov-switching and stochastic volatility diffusion models of the short rate. The evidence supports the Markov-switching diffusion model. Estimates of the ...

Unspanned stochastic volatility (USV) refers to the inability of bonds to replicate volatility-sensitive derivative securities. Affine term structure models require special restrictions on the ...

We highlight a state variable misspecification with one accepted method to implement stochastic volatility (SV) in DSGE models when transforming the nonlinear state-innovation dynamics to its linear ...