Robustness for path-dependent volatility models

DOI10.1007/S10203-012-0128-4MaRDI QIDQ377786zbMATH OpenOpenAlexFDO

Authors Mauro Rosestolato, Tiziano Vargiolu, Giovanna Villani

Publication date 7 November 2013

Published in Decisions in Economics and Finance (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1007/s10203-012-0128-4

zbMATH Keywords

Hobson-Rogers modelpath-dependent volatility models

Mathematics Subject Classification ID

Applications of stochastic analysis (to PDEs, etc.) (60H30) Stochastic models in economics (91B70) Statistical methods; economic indices and measures (91B82) Derivative securities (option pricing, hedging, etc.) (91G20)

Review text

The paper focuses on financial models where the price evolution depends on current values as well as on past values. In particular, the study considers a generalization [\textit{P. Foschi} and \textit{A. Pascucci}, Decis. Econ. Finance 31, No. 1, 13--32 (2008; Zbl 1160.35457)] of the Hobson-Rogers model [\textit{D. G. Hobson} and \textit{L. C. G. Rogers}, Math. Finance 8, No. 1, 27--48 (1998; Zbl 0908.90012)] on the basis of some recent results in the literature. Within this context, the robustness of the aforementioned model is investigated with respect to the offset function, which depends on the past risky asset. Throughout the analysis, some existing results on the use of past information are extended; at the same time the width of the observation window is properly improved. Moreover the stationarity of the model is characterized. Finally the model is calibrated to the prices of two indexes, on the basis of two different volatility shapes.

Recommendations

• Path dependent volatility
• Robustness of the Hobson-Rogers model with respect to the offset function
• Financial models with dependence on the past: a survey
• Calibration of a path-dependent volatility model: empirical tests
• Robustness of Delta Hedging for Path-Dependent Options in Local Volatility Models

Cites work

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• Robustness of the Hobson-Rogers model with respect to the offset function
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Cited in

(7)

• scientific article; zbMATH DE number 5853093 (Why is no real title available?)
• Financial models with dependence on the past: a survey
• Robustness of the Hobson-Rogers model with respect to the offset function
• Robustness of Delta Hedging for Path-Dependent Options in Local Volatility Models
• Robustness of Hilbert space-valued stochastic volatility models
• Path dependent volatility
• Calibration of a path-dependent volatility model: empirical tests

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