Power law in Sandwiched Volterra Volatility model
Mathematical Finance
2023-11-03 v1 Probability
Abstract
In this paper, we present analytical proof demonstrating that the Sandwiched Volterra Volatility (SVV) model is able to reproduce the power-law behavior of the at-the-money implied volatility skew, provided the correct choice of the Volterra kernel. To obtain this result, we assess the second-order Malliavin differentiability of the volatility process and investigate the conditions that lead to explosive behavior in the Malliavin derivative. As a supplementary result, we also prove a general Malliavin product rule.
Keywords
Cite
@article{arxiv.2311.01228,
title = {Power law in Sandwiched Volterra Volatility model},
author = {Giulia Di Nunno and Anton Yurchenko-Tytarenko},
journal= {arXiv preprint arXiv:2311.01228},
year = {2023}
}