A Data-Reconstructed Fractional Volatility Model
AbstractBased on criteria of mathematical simplicity and consistency with empirical market data, a stochastic volatility model is constructed, the volatility process being driven by fractional noise. Price return statistics and asymptotic behavior are derived from the model and compared with data. Deviations from Black-Scholes and a new option pricing formula are also obtained. --
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2008-22.
Date of creation: 2008
Date of revision:
Fractional noise; induced volatility; statistics of returns; option pricing;
Other versions of this item:
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
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