A Data-Reconstructed Fractional Volatility Model

Mendes, Rui Vilela; Oliveira, Maria J.

Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/17994

Title:

A Data-Reconstructed Fractional Volatility Model

Authors:

Mendes, Rui Vilela
Oliveira, Maria J.

Year of Publication:

2008

Series/Report no.:

Economics Discussion Papers No. 2008-22

Publisher:

Kiel Institute for the World Economy (IfW), Kiel

Abstract:

Based on criteria of mathematical simplicity and consistency with empirical market data, a stochastic volatility model is constructed, the volatility process being driven by fractional noise. Price return statistics and asymptotic behavior are derived from the model and compared with data. Deviations from Black-Scholes and a new option pricing formula are also obtained.

Subjects:

Fractional noise
induced volatility
statistics of returns
option pricing

JEL:

C51
G14
G12

Creative Commons License: