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Fractional Brownian motion with zero Hurst parameter: a rough volatility viewpoint

Eyal Neuman and Mathieu Rosenbaum

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Abstract: Rough volatility models are becoming increasingly popular in quantitative finance. In this framework, one considers that the behavior of the log-volatility process of a financial asset is close to that of a fractional Brownian motion with Hurst parameter around 0.1. Motivated by this, we wish to define a natural and relevant limit for the fractional Brownian motion when $H$ goes to zero. We show that once properly normalized, the fractional Brownian motion converges to a Gaussian random distribution which is very close to a log-correlated random field.

New Economics Papers: this item is included in nep-ets
Date: 2017-11, Revised 2018-05
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