Volatility is rough

Jim Gatheral, Thibault Jaisson and Mathieu Rosenbaum

Papers from arXiv.org

Abstract: Estimating volatility from recent high frequency data, we revisit the question of the smoothness of the volatility process. Our main result is that log-volatility behaves essentially as a fractional Brownian motion with Hurst exponent H of order 0.1, at any reasonable time scale. This leads us to adopt the fractional stochastic volatility (FSV) model of Comte and Renault. We call our model Rough FSV (RFSV) to underline that, in contrast to FSV, H

Date: 2014-10
New Economics Papers: this item is included in nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1410.3394

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