Can I read Pricing Under Rough Volatility on EtoBox?

Pricing Under Rough Volatility by Christian Bayer; Peter K. Friz; Jim Gatheral is a Economics, Econometrics and Finance article available to read on EtoBox.

What is Pricing Under Rough Volatility about?

From an analysis of the time series of realized variance using recent high frequency data, Gatheral, Jaisson and Rosenbaum previously showed that the logartihm of realized variance behaves essentially as a fractional Brownian motion with Hurst exponent H of order 0.1, at any reasonable time scale. The resulting Rough Fractional Stochastic Volatility (RFSV) model is remarkably consistent with financial time series data. We now show how the RFSV model can be used to price claims on both the underlying and integrated variance. We analyze in detail a simple case of this model, the rBergomi model. In particular, we find that the rBergomi model fits the SPX volatility markedly better than conventional Markovian stochastic volatility models, and with fewer parameters. Finally, we show that actual SPX variance swap curves seem to be consistent with model forecasts, with particular dramatic examples from the weekend of the collapse of Lehman Brothers and the Flash Crash.

Who reads Pricing Under Rough Volatility?

Author

Christian Bayer; Peter K. Friz; Jim Gatheral

Publisher

Elsevier BV

Published

2015

Language

EN

Field

Economics, Econometrics and Finance (Social Sciences)