Testing the local volatility assumption: a statistical approach
AbstractIn practice, the choice of using a local volatility model or a stochastic volatility model is made according to their respective ability to fit implied volatility surfaces. In this paper, we adopt an opposite point of view. Indeed, based on historical data, we design a statistical procedure aiming at testing the assumption of a local volatility model for the price dynamics, against the alternative of a stochastic volatility model.
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Bibliographic InfoArticle provided by Springer in its journal Annals of Finance.
Volume (Year): 8 (2012)
Issue (Month): 1 (February)
Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=112370
Local volatility models; Stochastic volatility models; Test statistics; Semi-martingales; Limit theorems; 60F05; 60G44; 60J60; 62M02; 62M07;
Other versions of this item:
- Mark Podolskij & Mathieu Rosenbaum, 2011. "Testing the local volatility assumption: a statistical approach," CREATES Research Papers 2011-04, School of Economics and Management, University of Aarhus.
- C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Jean Jacod & Mark Podolskij, 2012. "A Test for the Rank of the Volatility Process: The Random Perturbation Approach," Global COE Hi-Stat Discussion Paper Series gd12-268, Institute of Economic Research, Hitotsubashi University.
- Jean Jacod & Mark Podolskij, 2012. "A test for the rank of the volatility process: the random perturbation approach," CREATES Research Papers 2012-57, School of Economics and Management, University of Aarhus.
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