A generalization for skewness of the basic stochastic volatility model

The basic stochastic volatility (SV) model does not take into account the possible skewness of a time series. In order to overcome this drawback, we introduce a generalisation of such a model based on the assumption that the observations follow the Skew Normal distribution rather than the Normal one. The degree of skewness is regulated by an appropriate parameter; when this parameter is equal to zero, the proposed model is equivalent to the basic SV model. It turns out especially appropriate for daily stock returns.