Reconstructing Volatility: Pricing of Index Options under Rough Volatility

Peter K. Friz and Thomas Wagenhofer

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Abstract: In previous works Avellaneda et al. pioneered the pricing and hedging of index options - products highly sensitive to implied volatility and correlation assumptions - with large deviations methods, assuming local volatility dynamics for all components of the index. We here present an extension applicable to non-Markovian dynamics and in particular the case of rough volatility dynamics.

Date: 2022-12
New Economics Papers: this item is included in nep-rmg
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