Large deviation principle for Volterra type fractional stochastic volatility models
Abstract
We study fractional stochastic volatility models in which the volatility process is a positive continuous function of a continuous Gaussian process . Forde and Zhang established a large deviation principle for the log-price process in such a model under the assumptions that the function is globally H\"{o}lder-continuous and the process is fractional Brownian motion. In the present paper, we prove a similar small-noise large deviation principle under weaker restrictions on and . We assume that satisfies a mild local regularity condition, while the process is a Volterra type Gaussian process. Under an additional assumption of the self-similarity of the process , we derive a large deviation principle in the small-time regime. As an application, we obtain asymptotic formulas for binary options, call and put pricing functions, and the implied volatility in certain mixed regimes.
Cite
@article{arxiv.1710.10711,
title = {Large deviation principle for Volterra type fractional stochastic volatility models},
author = {Archil Gulisashvili},
journal= {arXiv preprint arXiv:1710.10711},
year = {2018}
}