Volatility has to be rough
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Publication:5014164
Abstract: First, we give an asymptotic expansion of short-dated at-the-money implied volatility that refines the preceding works and proves in particular that non-rough volatility models are inconsistent to a power law of volatility skew. Second, we show that given a power law of volatility skew in an option market, a continuous price dynamics of the underlying asset with non-rough volatility admits an arbitrage opportunity. The volatility therefore has to be rough in a viable market of the underlying asset of which the volatility skew obeys a power law.
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Cited in
(27)- Volterra square-root process: stationarity and regularity of the law
- A partial rough path space for rough volatility
- Short communication: on the weak convergence rate in the discretization of rough volatility models
- Buy rough, sell smooth
- Approximation of Stochastic Volterra Equations with kernels of completely monotone type
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- Spiking the Volatility Punch
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- Power law in Sandwiched Volterra Volatility model
- From rough to multifractal volatility: the log S-fBm model
- The characteristic function of Gaussian stochastic volatility models: an analytic expression
- Wiener Spiral for Volatility Modeling
- Path shadowing Monte Carlo
- Finite arbitrage times and the volatility smile?
- Short-time implied volatility of additive normal tempered stable processes
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