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The fractional volatility model: No-arbitrage, leverage and completeness

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  • R. Vilela Mendes
  • M. J. Oliveira
  • A. M. Rodrigues

Abstract

Based on a criterion of mathematical simplicity and consistency with empirical market data, a stochastic volatility model has been obtained with the volatility process driven by fractional noise. Depending on whether the stochasticity generators of log-price and volatility are independent or are the same, two versions of the model are obtained with different leverage behavior. Here, the no-arbitrage and completeness properties of the models are studied.

Suggested Citation

  • R. Vilela Mendes & M. J. Oliveira & A. M. Rodrigues, 2012. "The fractional volatility model: No-arbitrage, leverage and completeness," Papers 1205.2866, arXiv.org.
    • Handle: RePEc:arx:papers:1205.2866
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    References listed on IDEAS

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