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Calibration of the Hobson&Rogers model: empirical tests

  • Andrea Pascucci

    (Università di Bologna, Italy)

  • Paolo Foschi

    (Università di Bologna, Italy)

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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File URL: http://128.118.178.162/eps/fin/papers/0509/0509020.pdf
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Paper provided by EconWPA in its series Finance with number 0509020.

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Length: 26 pages
Date of creation: 16 Sep 2005
Date of revision:
Handle: RePEc:wpa:wuwpfi:0509020
Note: Type of Document - pdf; pages: 26
Contact details of provider: Web page: http://128.118.178.162

References listed on IDEAS
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  1. 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.
  2. Andrea Pascucci & Marco Di Francesco, 2005. "On the complete model with stochastic volatility by Hobson and Rogers," Finance 0503013, EconWPA.
  3. 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.
  4. Carl Chiarella & Oh-Kang Kwon, 2000. "A Complete Stochastic Volatility Model in the HJM Framework," Research Paper Series 43, Quantitative Finance Research Centre, University of Technology, Sydney.
  5. David G. Hobson & L. C. G. Rogers, 1998. "Complete Models with Stochastic Volatility," Mathematical Finance, Wiley Blackwell, vol. 8(1), pages 27-48.
  6. René Garcia & Eric Ghysels & Éric Renault, 2004. "The Econometrics of Option Pricing," CIRANO Working Papers 2004s-04, CIRANO.
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