Barndorff-Nielsen, Ole E.; Veraart, Almut E. D. - School of Economics and Management, University of Aarhus - 2009
This paper introduces the concept of stochastic volatility of volatility in continuous time and, hence, extends … standard stochastic volatility (SV) models to allow for an additional source of randomness associated with greater variability … in the data. We discuss how stochastic volatility of volatility can be defined both non–parametrically, where we link it …