Derivative pricing under the possibility of long memory in the supOU stochastic volatility model

Robert Stelzer and Jovana Zavi\v{s}in

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Abstract: We consider the supOU stochastic volatility model which is able to exhibit long-range dependence. For this model we give conditions for the discounted stock price to be a martingale, calculate the characteristic function, give a strip where it is analytic and discuss the use of Fourier pricing techniques. Finally, we present a concrete specification with polynomially decaying autocorrelations and calibrate it to observed market prices of plain vanilla options.

Date: 2014-04
New Economics Papers: this item is included in nep-ger
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