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arXiv · 1007.2817

The fractional volatility model: No-arbitrage, leverage and risk measures

R. Vilela Mendes·Maria João Oliveira
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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.

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R. Vilela Mendes, Maria João Oliveira. 2010-07-16. The fractional volatility model: No-arbitrage, leverage and risk measures. https://arxiv.org/abs/1007.2817

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