Asymptotic behaviour of randomised fractional volatility models

B. Horvath; A. Jacquier; C. Lacombe

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arXiv · 1708.01121

Asymptotic behaviour of randomised fractional volatility models

B. Horvath·A. Jacquier·C. Lacombe

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Abstract

We study the asymptotic behaviour of a class of small-noise diffusions driven by fractional Brownian motion, with random starting points. Different scalings allow for different asymptotic properties of the process (small-time and tail behaviours in particular). In order to do so, we extend some results on sample path large deviations for such diffusions. As an application, we show how these results characterise the small-time and tail estimates of the implied volatility for rough volatility models, recently proposed in mathematical finance.

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B. Horvath, A. Jacquier, C. Lacombe. 2017-08-03. Asymptotic behaviour of randomised fractional volatility models. https://arxiv.org/abs/1708.01121

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