Risk premium and rough volatility
Mathematical Finance
2025-12-05 v2
Abstract
One the one hand, rough volatility has been shown to provide a consistent framework to capture the properties of stock price dynamics both under the historical measure and for pricing purposes. On the other hand, market price of volatility risk is a well-studied object in Financial Economics, and empirical estimates show it to be stochastic rather than deterministic. Starting from a rough volatility model under the historical measure, we take up this challenge and provide an analysis of the impact of such a non-deterministic risk for pricing purposes.
Cite
@article{arxiv.2403.11897,
title = {Risk premium and rough volatility},
author = {Ofelia Bonesini and Antoine Jacquier and Aitor Muguruza},
journal= {arXiv preprint arXiv:2403.11897},
year = {2025}
}
Comments
17 pages, 6 figures