Correction to Black-Scholes formula due to fractional stochastic volatility
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Publication:4607044
DOI10.1137/15M1036749zbMATH Open1407.91290arXiv1509.01175MaRDI QIDQ4607044FDOQ4607044
Authors: Knut Sølna, Josselin Garnier 
Publication date: 12 March 2018
Published in: SIAM Journal on Financial Mathematics (Search for Journal in Brave)
Abstract: Empirical studies show that the volatility may exhibit correlations that decay as a fractional power of the time offset. The paper presents a rigorous analysis for the case when the stationary stochastic volatility model is constructed in terms of a fractional Ornstein Uhlenbeck process to have such correlations. It is shown how the associated implied volatility has a term structure that is a function of maturity to a fractional power.
Full work available at URL: https://arxiv.org/abs/1509.01175
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Fractional processes, including fractional Brownian motion (60G22) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Processes in random environments (60K37) Financial applications of other theories (91G80)
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Cited In (26)
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