A data-reconstructed fractional volatility model

Mendes, Rui Vilela; Oliveira, Maria João

http://hdl.handle.net/10400.2/1711

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Authors

Mendes, Rui Vilela

Oliveira, Maria João

Abstract(s)

Based on criteria of mathematical simplicity and consistency with empirical market data, a stochastic volatility model is constructed, the volatility process being driven by fractional noise. Price return statistics and asymptotic behavior are derived from the model and compared with data. Deviations from Black-Scholes and a new option pricing formula are also obtained.

Keywords

Fractional noise Induced volatility Statistics of returns Option pricing

URI

http://hdl.handle.net/10400.2/1711

Citation

Mendes, Rui Vilela; Oliveira, Maria João - A data-reconstructed fractional volatility model. "Economics [Em linha] : the open-access, open-assessment E-journal: discussion paper". ISSN 1864-6042. Nº 22 (2008), p. 1-20