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Discussion Papers, SFB 373, HU Berlin >
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http://hdl.handle.net/10419/62176
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| Title: | | A minimal financial market model  |
| Authors: | | Platen, Eckhard |
| Issue Date: | | 2000 |
| Series/Report no.: | | Discussion Papers, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 2000,91 |
| Abstract: | | The paper proposes a financial market model that generates stochastic volatility and stochastic interest rate using a minimal number of factors that characterise the dynamics of the different denominations of the deflator. It models asset prices essentially as functionals of square root and Ornstein-Uhlenbeek processes. The resulting price processes exhibit stochastic volatility with leptokurtic log-return distributions that c1osely match those observed in reality. The resulting index of the market is negatively correlated with its volatility which models the well-known leverage effect. The average growth rates of the different denominations of the deflator are Ornstein-Uhlenbeek processes which generates the typically observed long term Gaussianity of logreturns of asset prices. |
| Subjects: | | stochastic volatility financial market model derivative pricing square root process |
| JEL: | | G10 G13 |
| Persistent Identifier of the first edition: | | urn:nbn:de:kobv:11-10048178 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Discussion Papers, SFB 373, HU Berlin
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