Discussion Paper
No. 2008-22 | May 13, 2008
Rui Vilela Mendes and Maria J. Oliveira
A Data-Reconstructed Fractional Volatility Model

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.

JEL Classification:

C51, G12, G14

Cite As

Rui Vilela Mendes and Maria J. Oliveira (2008). A Data-Reconstructed Fractional Volatility Model. Economics Discussion Papers, No 2008-22, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2008-22


Comments and Questions



Anonymous - Referee Report
November 24, 2008 - 09:01
See attached file

Rui Vilela Mendes, Maria J. Oliveira - Reply to Referee Report
December 11, 2008 - 11:57
See attached file