The fractional volatility model: No-arbitrage, leverage and risk measures

Rui Mendes and Maria Jo\~ao Oliveira

Papers from arXiv.org

Abstract: Based on a criterium of mathematical simplicity and consistency with empirical market data, a stochastic volatility model has been obtained with the volatility process driven by fractional noise. Depending on whether the stochasticity generators of log-price and volatility are independent or are the same, two versions of the model are obtained with different leverage behavior. Here, the no-arbitrage and incompleteness properties of the model are studied. Some risk measures are also discussed in this framework.

Date: 2010-07
New Economics Papers: this item is included in nep-ets
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1007.2817

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