Risk premium and rough volatility
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arXiv
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| Auteurs principaux: | , , |
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| Format: | Preprint |
| Publié: |
2024
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| _version_ | 1866912746948263936 |
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| author | Bonesini, Ofelia Jacquier, Antoine Muguruza, Aitor |
| author_facet | Bonesini, Ofelia Jacquier, Antoine Muguruza, Aitor |
| contents | One the one hand, rough volatility has been shown to provide a consistent framework to capture the properties of stock price dynamics both under the historical measure and for pricing purposes. On the other hand, market price of volatility risk is a well-studied object in Financial Economics, and empirical estimates show it to be stochastic rather than deterministic. Starting from a rough volatility model under the historical measure, we take up this challenge and provide an analysis of the impact of such a non-deterministic risk for pricing purposes. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2403_11897 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Risk premium and rough volatility Bonesini, Ofelia Jacquier, Antoine Muguruza, Aitor Mathematical Finance 60F17, 60F05, 60G15, 60G22, 91G20, 91G60, 91B25 One the one hand, rough volatility has been shown to provide a consistent framework to capture the properties of stock price dynamics both under the historical measure and for pricing purposes. On the other hand, market price of volatility risk is a well-studied object in Financial Economics, and empirical estimates show it to be stochastic rather than deterministic. Starting from a rough volatility model under the historical measure, we take up this challenge and provide an analysis of the impact of such a non-deterministic risk for pricing purposes. |
| title | Risk premium and rough volatility |
| topic | Mathematical Finance 60F17, 60F05, 60G15, 60G22, 91G20, 91G60, 91B25 |
| url | https://arxiv.org/abs/2403.11897 |