Rough Stochastic Elasticity of Variance and Option Pricing
Finance research letters(2020)
摘要
This study is concerned with the elasticity of variance for risky assets. We show that the elasticity of variance for S&P500 exhibits short-range correlations. By using asymptotic and martingale methods, we obtain a semi-analytical expression for the option price in the two-scale regime where the constant elasticity of variance is perturbed by a smooth and bounded function of a rapid fractional Ornstein-Uhlenbeck process with Hurst exponent within (0, 2 ). The associated 1 implied volatility is presented and discussed. As a result, the scope of Markov stochastic elasticity of variance model is extended to a non-Markov case.
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关键词
Short range correlation,Stochastic elasticity of variance,Fractional Ornstein-Uhlenbeck process,Hurst exponent,Mean reversion
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