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Risk premium and rough volatility

Author

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  • Ofelia Bonesini
  • Antoine Jacquier
  • Aitor Muguruza

Abstract

One the one hand, rough volatility has been shown to provide a consistent framework to capture the properties of stock price dynamics both under the historical measure and for pricing purposes. On the other hand, market price of volatility risk is a well-studied object in Financial Economics, and empirical estimates show it to be stochastic rather than deterministic. Starting from a rough volatility model under the historical measure, we take up this challenge and provide an analysis of the impact of such a non-deterministic risk for pricing purposes.

Suggested Citation

  • Ofelia Bonesini & Antoine Jacquier & Aitor Muguruza, 2024. "Risk premium and rough volatility," Papers 2403.11897, arXiv.org.
    • Handle: RePEc:arx:papers:2403.11897
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    References listed on IDEAS

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