Journal of Financial Economics Vol. 24 No. 1 1989
Stock-price volatility, mean-reverting diffusion, and noise
Abstract
Using weekly call option prices on twenty-five stocks over a ten-year period (1975–1985) and calls on the S&P 500 stock-index futures, we find that ex ante market volatility follows a mixed mean-reverting diffusion with noise process. Changes in volatility are correlated across stocks and a marketwide volatility effect is found. Strong forces pull the volatility back to its long-term value. The findings suggest the development of new option pricing models.
- DOI
- 10.1016/0304-405x(89)90078-0
- Volume
- 24
- Issue
- 1
- Pages
- 193-214
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib