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Nonlinear biases in the roughness of a Fractional Stochastic Regularity Model

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  • Angelini, Daniele
  • Bianchi, Sergio

Abstract

A Multifractional Process with Random Exponent (MPRE) is used to model the dynamics of log-prices in a financial market. Under this assumption, we show that the Hurst-Hölder exponent of the MPRE follows the fractional Ornstein–Uhlenbeck process which in the Fractional Stochastic Volatility Model of Comte and Renault (1998) describes the dynamics of the log-volatility. We provide evidence that several biases of the estimation procedures can generate artificial rough volatility in surrogated as well as real financial data.

Suggested Citation

  • Angelini, Daniele & Bianchi, Sergio, 2023. "Nonlinear biases in the roughness of a Fractional Stochastic Regularity Model," Chaos, Solitons & Fractals, Elsevier, vol. 172(C).
    • Handle: RePEc:eee:chsofr:v:172:y:2023:i:c:s0960077923004514
    DOI: 10.1016/j.chaos.2023.113550
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    References listed on IDEAS

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