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Calibration of a path-dependent volatility model: Empirical tests

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  • Foschi, Paolo
  • Pascucci, Andrea

Abstract

The Hobson and Rogers model for option pricing is considered. This stochastic volatility model preserves the completeness of the market and can potentially reproduce the observed smile and term structure patterns of implied volatility. A calibration procedure based on ad-hoc numerical schemes for hypoelliptic PDEs is proposed and used to quantitatively investigate the pricing performance of the model. Numerical results based on S&P500 option prices are discussed.

Suggested Citation

  • Foschi, Paolo & Pascucci, Andrea, 2009. "Calibration of a path-dependent volatility model: Empirical tests," Computational Statistics & Data Analysis, Elsevier, vol. 53(6), pages 2219-2235, April.
    • Handle: RePEc:eee:csdana:v:53:y:2009:i:6:p:2219-2235
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    References listed on IDEAS

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    1. Sundaresan, S.M., 2000. "Continuous-Time Methods in Finance: A Review and an Assessment," Papers 00-03, Columbia - Graduate School of Business.
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    1. Mauro Rosestolato & Tiziano Vargiolu & Giovanna Villani, 2013. "Robustness for path-dependent volatility models," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 36(2), pages 137-167, November.

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