Gatheral double stochastic volatility model with Skorokhod reflection

American mathematical society
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© Copyright 2025 Taras Shevchenko National University of Kyiv. https://creativecommons.org/licenses/by/4.0/
We investigate the Gatheral model of double mean-reverting stochastic volatility, in which the drift term itself follows a mean-reverting process, and the overall model exhibits mean-reverting behavior. We demonstrate that such processes can attain values arbitrarily close to zero and remain near zero for extended periods, making them practically and statistically indistinguishable from zero. To address this issue, we propose a modified model incorporating Skorokhod reflection, which preserves the model’s flexibility while preventing volatility from approaching zero.

Emojulkaisu

ISBN

ISSN

1547-7363
0094-9000

Aihealue

Kausijulkaisu

Theory of probability and mathematical statistics|113

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