The fractional volatility model: No-arbitrage, leverage and risk measures

Details The fractional volatility model: No-arbitrage, leverage and risk measures The fractional volatility model: No-arbitrage, leverage and risk measures

2010-07-16

arxiv.org/abs/1007.2817v1

Economy

Quantitative Finance

Pricing of Securities

12 pages latex

Scientific paper

Based on a criterium of mathematical simplicity and consistency with empirical market data, a stochastic volatility model has been obtained with the volatility process driven by fractional noise. Depending on whether the stochasticity generators of log-price and volatility are independent or are the same, two versions of the model are obtained with different leverage behavior. Here, the no-arbitrage and incompleteness properties of the model are studied. Some risk measures are also discussed in this framework.

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