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Option pricing with fractional volatility

Rui Vilela Mendes·Maria Joao Oliveira
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Abstract

Based on empirical market data, a stochastic volatility model is proposed with volatility driven by fractional noise. The model is used to obtain a risk-neutrality option pricing formula and an option pricing equation.

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Rui Vilela Mendes, Maria Joao Oliveira. 2004-04-28. Option pricing with fractional volatility. https://arxiv.org/abs/cond-mat/0404684

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