Stochastic volatility of volatility and variance risk premia
نویسندگان
چکیده
This paper introduces a new class of stochastic volatility models which allows for stochastic volatility of volatility (SVV): Volatility modulated non–Gaussian Ornstein–Uhlenbeck (VMOU) processes. Various probabilistic properties of (integrated) VMOU processes are presented. Further we study the effect of the SVV on the leverage effect and on the presence of long memory. One of the key results in the paper is that we can quantify the impact of the SVV on the (stochastic) dynamics of the variance risk premium (VRP). Moreover, provided the physical and the risk–neutral probability measures are related through a structure–preserving change of measure, we obtain an explicit formula for the VRP.
منابع مشابه
Stochastic dynamics of variance risk premia through stochastic volatility of volatility
This paper introduces a new class of stochastic volatility models which allows for stochastic volatility of volatility. Such models are given by volatility modulated non–Gaussian Ornstein Uhlenbeck processes. We study the probabilistic properties of such models both under the physical and under the risk neutral probability measure, where we focus in particular on the role of the volatility of v...
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