Calibration of the Hobson&Rogers model: empirical tests
The path-dependent volatility model by Hobson and Rogers is considered. It is known that this model can potentially reproduce the observed smile and skew patterns of different directions, while preserving the completeness of the market. In order to quantitatively investigate the pricing performance of the model a calibration procedure is here derived. Numerical results based on S&P500 option prices give evidence of the effectiveness of the model.
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- René Garcia & Eric Ghysels & Éric Renault, 2004. "The Econometrics of Option Pricing," CIRANO Working Papers 2004s-04, CIRANO.
- David G. Hobson & L. C. G. Rogers, 1998. "Complete Models with Stochastic Volatility," Mathematical Finance, Wiley Blackwell, vol. 8(1), pages 27-48.
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- Mark Broadie & Mikhail Chernov & Michael Johannes, 2007. "Model Specification and Risk Premia: Evidence from Futures Options," Journal of Finance, American Finance Association, vol. 62(3), pages 1453-1490, 06.
- Bates, David S., 2000. "Post-'87 crash fears in the S&P 500 futures option market," Journal of Econometrics, Elsevier, vol. 94(1-2), pages 181-238.
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