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arXiv · 1205.2866

The fractional volatility model: No-arbitrage, leverage and completeness

R. Vilela Mendes·M. J. Oliveira·A. M. Rodrigues
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Abstract

Based on a criterion 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 completeness properties of the models are studied.

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BibTeXRIS

R. Vilela Mendes, M. J. Oliveira, A. M. Rodrigues. 2012-05-13. The fractional volatility model: No-arbitrage, leverage and completeness. https://doi.org/10.1016/j.physa.2014.10.056

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