Combined Mutiplicative-Heston Model for Stochastic Volatility

Understand

We consider a model of stochastic volatility which combines features of the multiplicative model for large volatilities and of the Heston model for small volatilities.

• The steady-state distribution in this model is a Beta Prime and is characterized by the power-law behavior at both large and small volatilities.
• We discuss the reasoning behind using this model as well as consequences for our recent analyses of distributions of stock returns and realized volatility.