The constant parameters <math>\sigma,\;\gamma</math> satisfy the conditions <math>\sigma\geq 0,\;\gamma\geq 0</math>.
The parameter <math>\gamma</math> controls the relationship between volatility and price, and is the central feature of the model. When <math>\gamma < 1</math> we see an effect, commonly observed in equity markets, where the volatility of a stock increases as its price falls and the leverage ratio increases.<ref> Yu, J., 2005. On leverage in a stochastic volatility model. Journal of Econometrics 127, 165–178.</ref> Conversely, in commodity markets, we often observe <math>\gamma > 1</math>,<ref>Emanuel, D.C., and J.D. MacBeth, 1982. "Further Results of the Constant Elasticity of Variance Call Option Pricing Model." Journal of Financial and Quantitative Analysis, 4 : 533–553</ref><ref>Geman, H, and Shih, YF. 2009. "Modeling Commodity Prices under the CEV Model." The Journal of Alternative Investments 11 (3): 65–84. {{doi|10.3905/JAI.2009.11.3.065}}</ref> whereby the volatility of the price of a commodity tends to increase as its price increases and leverage ratio decreases. If we observe <math>\gamma = 0</math> this model is considered the model which was proposed by [[Louis Bachelier]] in his PhD Thesis "The Theory of Speculation".
