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.

Question

Quizplus · Accepted Answer

Stochastic volatility models often assume that volatility follows a mean-reverting process, which means it tends to return to a long-term average over time.

Stochastic Volatility Models Commonly Assume