A Data-Reconstructed Fractional Volatility Model

Rui Mendes and Maria J. Oliveira

No 2008-22, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: Based on criteria of mathematical simplicity and consistency with empirical market data, a stochastic volatility model is constructed, the volatility process being driven by fractional noise. Price return statistics and asymptotic behavior are derived from the model and compared with data. Deviations from Black-Scholes and a new option pricing formula are also obtained.

Keywords: Fractional noise; induced volatility; statistics of returns; option pricing (search for similar items in EconPapers)
JEL-codes: C51 G12 G14 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-ets
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: A data-reconstructed fractional volatility model (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:7284

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