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arXiv · 1404.1773

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

Robert Stelzer·Jovana Zavišin
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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.

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Robert Stelzer, Jovana Zavišin. 2014-04-07. Derivative pricing under the possibility of long memory in the supOU stochastic volatility model. https://arxiv.org/abs/1404.1773

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