Nonlinear biases in the roughness of a Fractional Stochastic Regularity Model

Daniele Angelini and Sergio Bianchi

Chaos, Solitons & Fractals, 2023, vol. 172, issue C

Abstract: A Multifractional Process with Random Exponent (MPRE) is used to model the dynamics of log-prices in a financial market. Under this assumption, we show that the Hurst-Hölder exponent of the MPRE follows the fractional Ornstein–Uhlenbeck process which in the Fractional Stochastic Volatility Model of Comte and Renault (1998) describes the dynamics of the log-volatility. We provide evidence that several biases of the estimation procedures can generate artificial rough volatility in surrogated as well as real financial data.

Keywords: Rough volatility; Fractional Ornstein–Uhlenbeck process; Multifractional process with random exponent; Hurst-Hölder exponent (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chsofr:v:172:y:2023:i:c:s0960077923004514

DOI: 10.1016/j.chaos.2023.113550

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