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

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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.
Original languageEnglish
Article number46
JournalRisks
Volume6
Issue number2
Number of pages16
ISSN2227-9091
DOIs
Publication statusPublished - Jun 2018

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ID: 201613463