Derivative pricing under the possibility of long memory in the supOU stochastic volatility model
Pricing of Securities
2014-04-08 v1 Probability
Abstract
We consider the supOU stochastic volatility model which is able to exhibit long-range dependence. For this model we give conditions for the discounted stock price to be a martingale, calculate the characteristic function, give a strip where it is analytic and discuss the use of Fourier pricing techniques. Finally, we present a concrete specification with polynomially decaying autocorrelations and calibrate it to observed market prices of plain vanilla options.
Keywords
Cite
@article{arxiv.1404.1773,
title = {Derivative pricing under the possibility of long memory in the supOU stochastic volatility model},
author = {Robert Stelzer and Jovana Zavišin},
journal= {arXiv preprint arXiv:1404.1773},
year = {2014}
}