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Forecasting volatility with the multifractal random walk model

Author

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  • Jean Duchon
  • Raoul Robert
  • Vincent Vargas

    (CEREMADE)

Abstract

We study the problem of forecasting volatility for the multifractal random walk model. In order to avoid the ill posed problem of estimating the correlation length T of the model, we introduce a limiting object defined in a quotient space; formally, this object is an infinite range logvolatility. For this object and the non limiting object, we obtain precise prediction formulas and we apply them to the problem of forecasting volatility and pricing options with the MRW model in the absence of a reliable estimate of the average volatility and T.

Suggested Citation

  • Jean Duchon & Raoul Robert & Vincent Vargas, 2008. "Forecasting volatility with the multifractal random walk model," Papers 0801.4220, arXiv.org.
    • Handle: RePEc:arx:papers:0801.4220
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    File URL: http://arxiv.org/pdf/0801.4220
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