The fractional volatility model : no-arbitrage, leverage and completeness

Mendes, Rui Vilela; Oliveira, Maria João; Rodrigues, A. M.

http://hdl.handle.net/10400.2/3787

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Authors

Mendes, Rui Vilela

Oliveira, Maria João

Rodrigues, A. M.

Abstract(s)

When the volatility process is driven by fractional noise one obtains a model which is consistent with the empirical market data. Depending on whether the stochasticity generators of log-price and volatility are independent or are the same, two versions of the model are obtained with different leverage behaviors. Here, the no-arbitrage and completeness properties of the models are rigorously studied.

Keywords

Fractional noise Arbitrage Market completeness

URI

http://hdl.handle.net/10400.2/3787

Citation

Mendes, Rui Vilela; Oliveira, Maria João; Rodrigues, A. M. - The fractional volatility model : no-arbitrage, leverage and completeness. "Physica A" [Em linha]. ISSN 0378-4371. Vol. 419 (fev. 2015), p. 470-478