Path dependent volatility

Andrea Pascucci and Paolo Foschi

MPRA Paper from University Library of Munich, Germany

Abstract: We propose a general class of non-constant volatility models with dependence on the past. The framework includes path-dependent volatility models such as that by Hobson&Rogers and also path dependent contracts such as options of Asian style. A key feature of the model is that market completeness is preserved. Some empirical analysis, based on the comparison with the performance of standard local volatility and Heston models, shows the effectiveness of the path dependent volatility.

Keywords: option pricing; stochastic volatility; path dependent option (search for similar items in EconPapers)
JEL-codes: C02 G1 (search for similar items in EconPapers)
Date: 2006-11-30
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (7)

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Journal Article: Path dependent volatility (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:973

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