Volatility Inference and Return Dependencies in Stochastic Volatility Models
classification
💱 q-fin.MF
keywords
volatilitymodelsreturnsstochasticinformationstockcapturingdependencies
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Stochastic volatility models describe stock returns $r_t$ as driven by an unobserved process capturing the random dynamics of volatility $v_t$. The present paper quantifies how much information about volatility $v_t$ and future stock returns can be inferred from past returns in stochastic volatility models in terms of Shannon's mutual information.
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