The fractional volatility model: No-arbitrage, leverage and risk measures
Pricing of Securities
2010-07-28 v1 Probability
Statistical Finance
Abstract
Based on a criterium of mathematical simplicity and consistency with empirical market data, a stochastic volatility model has been obtained with the volatility process driven by fractional noise. 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 behavior. Here, the no-arbitrage and incompleteness properties of the model are studied. Some risk measures are also discussed in this framework.
Cite
@article{arxiv.1007.2817,
title = {The fractional volatility model: No-arbitrage, leverage and risk measures},
author = {R. Vilela Mendes and Maria João Oliveira},
journal= {arXiv preprint arXiv:1007.2817},
year = {2010}
}
Comments
12 pages latex