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Integrated OU Processes and Non-Gaussian OU-based Stochastic Volatility Models

Authors
Disciplines
  • Economics
  • Mathematics

Abstract

In this paper, we study the detailed distributional properties of integrated non-Gaussian Ornstein-Uhlenbeck (intOU) processes. Both exact and approximate results are given. We emphasize the study of the tail behaviour of the intOU process. Our results have many potential applications in financial economics, as OU processes are used as models of instantaneous variance in stochastic volatility (SV) models. In this case, an intOU process can be regarded as a model of integrated variance. Hence, the tail behaviour of the intOU process will determine the tail behaviour of returns generated by SV models. Copyright 2003 Board of the Foundation of the Scandinavian Journal of Statistics..

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