DEFINITION of 'Stochastic Volatility  SV'
A statistical method in mathematical finance in which volatility and codependence between variables is allowed to fluctuate over time rather than remain constant. "Stochastic" in this sense refers to successive values of a random variable that are not independent. Stochastic volatility is typically analyzed through sophisticated models, which became increasingly useful and accurate as computer technology improved.
Examples of stochastic volatility models include the Heston model, the SABR model, the Chen model and the GARCH model.
BREAKING DOWN 'Stochastic Volatility  SV'
Stochastic volatility models for options were developed out of a need to modify the Black Scholes model for option pricing, which failed to effectively take the volatility in the price of the underlying security into account. The Black Scholes model assumed that the volatility of the underlying security was constant, while stochastic volatility models categorized the price of the underlying security as a random variable. Allowing the price to vary in the stochastic volatility models improved the accuracy of calculations and forecasts.

Stochastic Modeling
A method of financial modeling in which one or more variables ... 
Heston Model
A type of stochastic volatility model developed by associate ... 
Local Volatility
A model used in quantitative finance to calculate the unpredictability ... 
Black Scholes Model
A model of price variation over time of financial instruments ... 
Model Risk
A type of risk that occurs when a financial model used to measure ... 
Black's Model
A variation of the popular BlackScholes options pricing model ...

Trading
Do You Have The Right Settings On Your Stochastic?
Use these helpful tips to unlock Stochastics' full potential. 
Trading
Know the Forces At Play Behind The Buy/Sell Cycles
Weekly Stochastics uncovers patterns of buying and selling pressure that can be predicted and capitalized upon by observant investors and traders. 
Trading
Exploring Oscillators and Indicators: Stochastic Oscillator
By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.com The stochastic oscillator is another wellknown momentum indicator used in technical analysis. The idea behind this indicator ... 
Trading
Combined Forces Power Forex Snap Strategy
Stochastic and MACD oscillators can help isolate greater opportunities in rangebound markets. 
Trading
Stochastics: An Accurate Buy And Sell Indicator
Stochastics measure the relationship between an issue’s closing price and its price range over a period of time. 
Markets
How Do Professionals Forecast Crude Oil Prices?
Discover how the future price of oil is predicted with a weighted combination of mathematical tools. Economists largely use five main models as their base. 
Investing
What is a Business Model?
Business model is the term for a company’s plan as to how it will earn revenue. 
Trading
Circumvent Limitations of BlackScholes Model
Mathematical or quantitative modelbased trading continues to gain momentum, despite major failures like the financial crisis of 200809, which was attributed to the flawed use of trading models. ... 
Markets
Trading Volatile Stocks with Technical Indicators
Shortterm traders seek volatility because of the profit potential, which leads to two common questions. How do I find volatile stocks? And how do I use technical indicators to trade them? Find ... 
Investing
Understanding Financial Models
A financial model is a representation of some aspects of a firm or given security. It uses historical numbers to create calculations that inform financial recommendations or predict future financial ...

What is the difference between fast and slow stochastics in technical analysis?
The main difference between fast and slow stochastics is summed up in one word: sensitivity. The fast stochastic is more ... Read Answer >> 
What technical skills must one possess to trade options?
Learn about the technical skills required to trade options and how mathematical and computer science skills give you a better ... Read Answer >> 
What is the difference between Stochastic Oscillator & Stochastic Momentum Index?
Discover how the stochastic oscillator and the Stochastic Momentum Index differ and why the latter is considered a more refined ... Read Answer >> 
What are the best technical indicators to complement the Stochastic Oscillator?
Explore the function of the stochastic oscillator indicator, and discover other technical indicators traders use to complement ... Read Answer >> 
What are the differences between Relative Strength Index (RSI) & Stochastic Oscillator?
Learn about some of the main differences between the relative strength index and the stochastic oscillator, two wellknown ... Read Answer >> 
How do I read and interpret an Stochastic Oscillator?
Understand the basics of the stochastic oscillator and how analysts and traders use this measure of trend momentum to predicts ... Read Answer >>