Journal Articles
Discussion Papers
Discussion Papers
2008-22
A Data-Reconstructed Fractional Volatility Model
May 13, 2008
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.
Citation
Rui Vilela Mendes, Maria J. Oliveira (2008). A Data-Reconstructed Fractional Volatility Model. Economics Discussion Papers, No 2008-22.
http://www.economics-ejournal.org/economics/discussionpapers/2008-22