Stochastic Volatility Models Commonly Assume

question 27

Multiple Choice

Stochastic volatility models commonly assume

• A) There are jumps in the evolution of the volatility process.
• B) Volatility follows a geometric Brownian motion process.
• C) Volatility is normally distributed.
• D) Volatility follows a mean-reverting process.

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Definitions:

Present Value

The immediate value of a future money amount or a stream of cash inflows, based on a certain rate of return.

Accumulated Other Comprehensive Income

A component of shareholders' equity that includes income, gains, and losses that are excluded from net income, reflecting changes in equity from non-owner sources.

Sinking Funds

A method for a company to pay off debt by setting aside money over time, ensuring funds are available to repay the debt or replace an asset.

Current Liability

A company's debts or obligations that are due within one year or within the normal operating cycle, necessitating the use of current assets or the creation of new current liabilities.