Rough volatility: Evidence from option prices

Giulia Livieri, Saad Mouti, Andrea Pallavicini and Mathieu Rosenbaum

IISE Transactions, 2018, vol. 50, issue 9, 767-776

Abstract: It has been recently shown that spot volatilities can be closely modeled by rough stochastic volatility-type dynamics. In such models, the log-volatility follows a fractional Brownian motion with Hurst parameter smaller than half. This result has been established using high-frequency volatility estimations from historical price data. We revisit this finding by studying implied volatility-based approximations of the spot volatility. Using at-the-money options on the S&P500 index with short maturity, we are able to confirm that volatility is rough. The Hurst parameter found here, of order 0.3, is slightly larger than that usually obtained from historical data. This is easily explained from a smoothing effect due to the remaining time to maturity of the considered options.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (52)

Downloads: (external link)
http://hdl.handle.net/10.1080/24725854.2018.1444297 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Rough volatility: evidence from option prices (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:uiiexx:v:50:y:2018:i:9:p:767-776

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/uiie20

DOI: 10.1080/24725854.2018.1444297

Access Statistics for this article

IISE Transactions is currently edited by Jianjun Shi

More articles in IISE Transactions from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().